Hachette vs. Amazon: Show Me the Money

I am no Amazon fangirl. In April 2013 I blogged about my concerns when they took over Goodreads. On the other hand I have what is probably an unhealthy attachment to my Kindle and I visit their site several times a week vis-à-vis books. Amazon seems to be one of the few companies aware that the book world is changing and certainly acts interested in helping readers navigate that world. They not only provide new books cheap but help you get old books and books from overseas. While I may not want Amazon to take over the book world, I certainly want them to be a large part of it.

My view of publishers has declined drastically over the last twenty years. While the signs have been that the internet and technology are changing the world of reading, publishers seem to be stuck in some kind of archaic rut where authors and readers still have no choice but to deal with them. They view the natural industry changes occurring as wolves at the door with the biggest, baddest wolf to ever come a-knocking being Amazon, “Earth’s Biggest Bookstore.”

This issue has been in and out of the news for the past several years as Amazon, Apple and several major publishers have fought over differences on the pricing of e-books in the courts and media. I hoped the matter was resolved in July of 2013 when Judge Denise Cote ruled that Apple and the publishers had conspired to gauge customers fix e-book prices. At that moment I felt everyone had learned their lesson. Cheap e-books would now be available to the masses and the publishers would cooperate and allow Amazon to discount to their hearts content. How naïve, right? The Judge’s final order in the case included a schedule for the various publishers involved to renegotiate e-book prices with retailers, Apple and Amazon included. Most are saying that the argument now is due to the fact that Hachette is first in line and they are determined to hit a home run for their side of the argument. And their side of the argument is that in order to survive, they need high e-book revenues.

Here is how The Wall Street Journal summed it up:

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, 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.

Of course, Hachette has taken pains to paint the picture of what is occurring quite differently. In their words – and that of much of the media- what is at stake is nothing less than intellectual freedom in America.

Jeremy Greenfield tells us in The Atlantic that it is not the price or display of the product that is the problem, as it would be in a typical negotiation between a supplier and retailer but “it’s the future of ideas in America. . .Should Amazon become the sole place most books are purchased, it could start to have too much control over what we read.”

In an article in The New Yorker reporter George Packer asks us, “Amazon is good for customers. But is it good for books?” The answer to that question is no. Here is his reasoning:

At the moment, (those) people are obsessed with how they read books—whether it’s on a Kindle or an iPad or on printed pages. This conversation, though important, takes place in the shallows and misses the deeper currents that, in the digital age, are pushing American culture under the control of ever fewer and more powerful corporations. Bezos is right: gatekeepers are inherently élitist, and some of them have been weakened, in no small part, because of their complacency and short-term thinking. But gatekeepers are also barriers against the complete commercialization of ideas, allowing new talent the time to develop and learn to tell difficult truths. When the last gatekeeper but one is gone, will Amazon care whether a book is any good?

In The Daily Beast we hear this from Hachette author James Patterson: “Amazon” is waging “war” and doing unspeakable things for which “the quality of American literature will suffer.” This from a man who doesn’t write his own books.

Multi-millionaire entertainer Stephen Colbert joined the fracas several days ago when he gave Amazon the middle finger and encouraged viewers to shop elsewhere and prove the he “can sell more books than Amazon!” Mr. Colbert is a Hachette author.

I think perhaps what most concerned me was Mr. Colbert entering the fray. In a time when some 25%of Americans have not even read a book in the past year (see also here) but most have watched TV (According to the NY Daily News “The average American over the age of 2 spends more than 34 hours a week watching live television, says a new Nielsen report — plus another three to six hours watching taped programs.”) his voice will easily have the most impact in this argument.

And yet he didn’t address what the real issue is – profit. Retailers can make a profit only one of two ways – higher price to the customer or higher percentage split with the publisher. Publishers are in favor of only one of those. Regarding the price issue, here is what Nick Gillespie says in The Daily Beast:

Publishers and independent bookstores have a long history of being against booksellers discounting prices. In the 1920s and ’30s, the American Booksellers Association sued Macy’s for selling books cheaply, and Franklin Roosevelt’s National Recovery Act included anti-discounting provisions that were ultimately ruled unconstitutional. In the 1990s, the same ABA filed suit against Barnes & Noble and Borders for similar practices.

While Amazon is open about being a retailer and selling for profit (and their profit margin on books has traditionally been pitifully low), the publishers don’t say that money is at the heart of their business. Because despite all their posturing, these companies run on profit, not art. And they aren’t the tiny little underdog they would have you believe. “But book publishers have been consolidating for several decades, under the ownership of media conglomerates like News Corporation, which squeeze them for profits, or holding companies such as Rivergroup, which strip them to service debt,” explains George Packer. As the Passive Voice points out, “Make no mistake about it, today’s traditional publishing establishment is the product of decades of consolidation, concentrating more and more power over what is published into fewer and fewer hands. The latest and largest example of this trend is the merger of Random House and Penguin to create the largest publisher in the world.” Publisher’s complaints aren’t that big business is destroying art; it is that their big businesses are no longer the biggest bully in the sandbox. Painting this as a quality issue or intellectual issue may make it sound more romantic but it doesn’t change the fact that in the end we are still talking about filthy lucre.

Additionally, I think this battle with Amazon is not so much about keeping Jeff Bezos from ruining the quality of literature (no one who tolerates the James Patterson system should even be allowed to say that) so much as insuring that things stay status quo. And Amazon, on top of selling discounted books, works with people who bypass the traditional system. More and more authors are finding that independent publishing can pay. Evan Hughes puts it this way:

In the long term, what publishers have to fear the most may not be Amazon but an idea it has helped engender—that the only truly necessary players in the game are the author and the reader. “I was at a meeting God knows how many years ago at MIT,” former Random House chief Epstein says, “and someone used the word disintermediation. When I deconstructed that, I said, ‘Oh my God, that’s the end of the publishing business.’ ”  At a time when a writer can post a novel online and watch the revenue pour in by direct deposit, the publishing industry’s skill at making books, selling them by hand to bookstores, and managing the distribution of the product threatens to become irrelevant. In Epstein’s vision, the writer may need a freelance editor, a publicist, and an agent who functions as a kind of business manager, but authors will keep a bigger share of the proceeds with no lumbering media corporation standing in the way.

Hachette, in attacking Amazon, also threatens authors like Connie Brockway who have forgone traditional publishing. Since Amazon sells some 50% of books published and since it services readers nationwide it provides a forum for authors and readers to connect more directly than ever before, cutting out the publisher middleman. This has been a huge boon to readers such as me looking for books that New York no longer feels are profitable enough to publish. If I didn’t have a Kindle my desire for romantic suspense books would go largely unmet since relatively few of these novels make it to print publication anymore. Thanks to Amazon I can get my fix through authors like Kendra Elliot, Kate Watterson, and Lisa Clark O’Neill.

There are a lot of issues swirling around this battle but I think it is important to look at the actual facts before we move on to discussing theory. To conclude, here are the facts I can make out.

1. Amazon underscores big publishing both by making books available at drastic discount and by allowing authors to circumvent the traditional system and sell straight to costumers.
2. Big publishing has a huge gross profit margin on e-books, somewhere around 75%.
3. Amazon wants to continue to offer steep discounts on the books and to continue to do this they are asking for a share of that profit. No one knows quite what that share is but given big publishing’s historical stance on discounting it wouldn’t have to be much to make them balk.
4. It’s about the money.

I’ll be posting additional blogs on this subject but here are my questions to you now: Does price affect your purchase? Do you feel that publishers consistently provide a service that is worth paying an extra 20% or more for your books? Are you afraid that Amazon’s willingness to discount popular books is somehow destroying literary greatness or intellectual freedom? Do you want to see more independent publishing or small press publishing or do you feel the big five are handling your needs well?

Maggie Boyd