Wednesday, 30 July 2014

The Industry View - Amazon vs Hachette

By JJ Marsh

OK, here’s the story so far:

Amazon and Hachette (one of the Big Five trade publishers) disagree terms. Amazon takes action against Hachette-published books by allegedly lowering discounts and removing pre-order options. Negotiations drag out and authors feel the pinch.

Authors such as Douglas Preston, Lee Child and John Grisham sign a letter, calling on Amazon to resolve the dispute without hurting authors and asking readers to email Jeff Bezos to ‘tell him what you think’.

Hugh Howey launches a petition of his own in support of Amazon and criticising the Big Five as devaluing readers and authors alike.

Amazon offers Hachette authors 100% royalties on their eBooks while the dispute lasts. 

UPDATE: July 29: Amazon release a statement with hard data on pricing.

David Gaughran
David Gaughran is an Irish writer, living in Prague, and the author of the historical adventures Mercenary and A Storm Hits Valparaiso, as well as the popular writers’ books Let’s Get Digital and Let’s Get Visible.
He blogs regularly about writing and the book business here. A keen observer of industry changes, a top-rated blogger and publishing advisor, this is his take on the dispute.

WWJ: This is not the first time a distributor and publisher have clashed. Why is Amazon v. Hachette attracting more interest than, for example, Barnes & Noble v. Simon & Schuster?

DG: Because it’s Amazon! It doesn’t matter that Barnes & Noble and Simon & Schuster had a similar dispute last year (without people losing their minds) because the currency of the internet is attention and a story on Amazon will guarantee more clicks than anything else. The spat between Amazon and Hachette is essentially a business dispute between a large corporation and a very large corporation, but the “industry” is attempting to depict it as a battle for the future of writing as a viable profession.

This allows them to tap into the fear that many writers have about the paradigm shift that’s underway. Hachette can’t come right out and say that it wants higher book prices (which is the result if they prevail in negotiations and take back control of pricing and/or restrict Amazon’s ability to discount), so instead we get a narrative of a rapacious corporation versus a plucky guardian of our literary heritage. Authors should adopt a little more scepticism towards what is a concerted PR campaign from a series of vested interests.

WWJ: The recent furore over author earnings can’t be ignored. Leaving aside the Pattersons and Childs, who’s losing out, if anyone?

DG: I don’t think we should set them aside so fast. Bestselling authors like Patterson, Preston & Child are being hit hard in this dispute because Amazon is no longer providing pre-order facilities to Hachette. Pre-orders are essential to the very top-selling authors because the New York Times counts all pre-order sales as first-week sales for the purposes of their bestseller list. These big-name authors are on very different contracts than the average writer (which is why we’ve never seen them organize a protest against unconscionable contract terms and the paltry royalty rates the average writer receives, or something like the industrial-scale scamming at places like Penguin Random House-owned Author Solutions). These guys tend to get escalators or bonuses based on things like appearing on the New York Times bestseller list, so the real reason for this protest, I respectfully submit, is that it’s hitting them in the pocket. I don’t think they care about the average writer.

That’s not to say the average Hachette author is unaffected by this dispute. Hachette’s Amazon sales are way down – by much more than other retailers are seeing an uptick. I’m sure that affects Hachette titles across the board. And I’m also sure that when these authors come to negotiate their next contract with Hachette that reduced sales numbers will have an impact on any terms they are offered, despite the fact that this dispute was outside their control, because that’s what always happens.

I’m hoping this dispute gets resolved as quickly as possible. However, I fear negotiations could drag out for some time, so it’s essential that Amazon and Hachette remove authors from the firing line immediately. To date, Amazon has made three separate offers to Hachette to compensate affected authors. Hachette has summarily dismissed each offer without making any counter-offer whatsoever – indicative, in my opinion, of how it has approached the overall negotiations. Indeed, it could be argued that Hachette wants to keep authors in the firing line to increase the pressure on Amazon.

WWJ: Accusations and emotions are running high, with commentators invoking everything from commercial suicide to predicting the death of literature. What’s your outlook?

DG: Fear is the most powerful tool if you want to manipulate public opinion. Emotions are running high because the publishing industry is being radically reshaped by the same disruptive forces that have transformed all sorts of industries from travel and insurance to newspapers and music. Change is scary, and the publishing industry is changing at light-speed. If you want a parallel with music, I think it’s akin to going from vinyl straight to MP3.

Publishers like Hachette have been doing everything possible to slow down the changeover from print to digital. It knows that self-publishers and small publishers are grabbing huge market share because large publishers don’t have a lock on digital distribution like they do with print. Once a reader goes from shopping in Waterstones to buying e-books from Amazon, that reader starts buying way more books that aren’t published by the biggest players. The response of large publishers to the digital revolution was to drag their feet on the digitization of backlist books, institute windowing for e-books (so they weren’t released at the same time as hardbacks), and engage in an illegal conspiracy to fix the price of e-books to keep prices artificially high – all of which is designed to slow down the switch to digital.

Hachette’s aim in these negotiations is to regain control of retail pricing and/or restrict Amazon’s ability to discount books. The net effect will be higher prices for readers, which in turn will slow down the transition to e-books. This buys Hachette time as it figures out this weird thing called the internet and how to talk to those strange people called readers – something they didn’t really have to do in a print world where its customers were booksellers.

I absolutely reject the notion that if Hachette fails to regain control of retail pricing and/or restrict Amazon’s ability to discount books that this will lead to some kind of disaster. I think that’s a regressive, zero-sum view of the marketplace which fails to grasp that books are in competition with all sorts of other forms of entertainment. I think lower prices are something that we should strive for as that grows the market – which benefits all writers (and readers).

WWJ: Both the letter and petition I mention above appeal to The Reader. Do you see readers as the reluctant jury service or fortunate beneficiaries in this case?

DG: I don’t think most readers care about the details of any publishing dispute, but they do care about the after-effects – which often aren’t immediately apparent. Readers reacted with boycotts and one-star reviews when five of the Big Six publishers engaged in an illegal conspiracy with Apple to fix the price of e-books. I think they will be similarly mad if Hachette prevails now and Hachette e-books become more expensive overnight.

WWJ: Amazon’s hold on the market is described as a monopsony. If the UK had retained the Net Book Agreement [fixed price book agreement such as exist in France and Germany], would we now be playing on a fairer field?

DG: It’s quite revealing how traditional publishers cast envious eyes at the price-fixing/discount-restricting laws in places like France and Germany. It makes a mockery of any claim that they weren’t intending to fix e-book prices in America. The nostalgia with which the Net Book Agreement is viewed is equally illuminating. Such price-maintenance agreements are always presented in the media as a positive thing for the future of literature, but they are really about control. Publishers want to maintain e-book prices at a higher level so they can slow the changeover to digital as much as possible. Let’s be very clear about this: anyone campaigning for these kinds of laws or agreements is campaigning for higher book prices – something I absolutely oppose and something I think would be an incredibly regressive step.

With regard to the UK in particular, the problem, in my view, wasn’t getting rid of the Net Book Agreement, but the practice of publishers offering sweetheart deals to chains and supermarkets, making it next-to-impossible for independent bookstores to compete.

WWJ: Earlier this month, New York publisher Morgan Entrekin said, “we’re seeing concentration in the fewest hands ever in publishing history.” Do you think that’s true?

DG: I presume Morgan Entrekin was talking about the retail side of the business, but it’s also happening on the publishing side. Penguin Random House was the highest-profile merger/acquisition in recent years but the first half of 2014 was the busiest for mergers/acquisitions since before the financial crisis. The concentration is more obvious on the retail side where Amazon has grabbed a huge chunk of the market and major bookselling chains have collapsed or are teetering on the brink. What’s interesting to me is that consolidation on the publishing side has historically led to poorer conditions for writers and readers (with worsening terms and higher book prices), but consolidation on the retail side seems to be doing the opposite. Book prices are falling, and writers have new ways to publish their work with better contract terms and higher royalty rates – whether that’s with a progressive digital publisher, or through self-publishing.

There’s no argument from me with the view that a diverse retail landscape is the ideal, but the above phenomenon should be noted because it illustrates that market domination by one player isn’t inherently bad, but what makes it less than ideal is what companies can do with such power. In other words, it’s about what Amazon might do at some undefined point in the future rather than their actions to date. If the solution being proposed to this future-problem is for government intervention and/or price-fixing agreements then that will make the situation worse, not better. We should be encouraging Amazon’s competitors to raise their game, instead of trying to remove competition from the marketplace.

The simple fact is that Amazon sells more e-books than anyone else because it provides a better customer experience. If you look at the e-bookstores of Barnes & Noble, Kobo, Apple, and Google, the difference is immediately apparent. And if you start divvying up the market by governmental fiat, then these players will have zero incentive to raise their game.


  1. Gaughran's closing remarks are right on the money. Thanks to David for participating in this interview. It finally helped me make sense of this whole mess!

  2. For me as a writer, I've always found Amazon supportive; it's allowed me to self-publish my "niche" educational books using Createspace and KDP without having to put money upfront in the way you do with most self-publishing. With Createspace you don't even have to pay for ISBN numbers. I've published with traditional publishers and have an agent etc, but I'm now finding that if you want to publish smaller niche publications such as study guides or guides for teachers, a traditional publisher will offer you very little advance (or nothing) and then you sign a contract which means you receive very little royalties. Since using Createspace/KDP, I've made money and I have control: if I notice a mistake etc or I want to produce a new edition, I can change things very quickly (this is very different from working with a traditional publisher). Amazon's dominance of the market does worry me, but they are really empowering many authors at the moment and offering them quite a good deal. The upfront advance isn't there but this has all but disappeared from most publishers, who only give advances to their sure-fire bestselling authors. I gave a talk at Goldsmiths' College about this here:
    The agent at the talk there was very angry with Amazon because he felt that Amazon was putting bookshops and traditional publishers out of business, and that Amazon doesn't essentially add "value" to its "self-published" books because they don't edit the books etc. I personally think he was angry that the traditional gatekeepers in publishing, the agents and publishers, are being swept away. I support Amazon because they offer authors like me with the best deals at the moment, but I am worried about their dominance over the market. However, I do think that publishers do need to be more imaginative in their approach.

  3. Hint: if you don't want your propaganda piece to look like a propaganda piece, at least make the effort to include a tiny bit of skepticism towards the guys you're siding with.

    I despair of readers, authors and anyone who think Amazon are their friends. They're a rapacious, unconscientious corporation who dodge taxes and bully their own employees, and as soon as they knock the competition thoroughly out of the water, all the benefits you feel at the moment will disappear, because authors and readers alike will have no alternative. Remember: they don't want to lower e-book prices out of principle. They only want to do it so that they can undercut existing competitors.

    For the record, I don't think much of the traditional model either. But a monopoly is something to genuinely fear.

    1. To quote Amazon:

      "For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that's 74% larger. The pie is simply bigger."

      Yeah Jon, that's a monopoly to worry about. If the Amazon monopoly raised it's prices and left that kind of money on the table, would run Amazon out of business. Tell ya what, you go hide under your bed until this blows over, don't worry, we'll tell ya when it's safe to come out.

  4. Thanks to JJ Marsh for the pertinent questions and to David Gaughran for the clear replies. I agree with Tony Breeden above that David's closing remarks are particularly helpful.

    Yes Amazon can be seen as an 'evil empire' and they do treat their staff badly, but customers like them especially if the prices are low. And yes, for now, they're the go to distributor for small and independent publishers. David's right that the heroes and villains of this issue are more than just Amazon and Hachette.

  5. From a readers standpoint – I too worry about the size and influence of some of our larger shopping places like Amazon (Walmart and other big box places too!) But that is more than completely offset by the help it has provided me and the ease with which I can now get and find books. I think about the past when I would drive from store to store or wait weeks for a book at the library. (Especially technical books.) The reviews from other readers are awesome too! In the past bookstores were just store fronts for what the major publishers wanted to push. Most of the staff were teenagers who only knew books that they had read or what their manager told them about some big publishing push for the week. I love Amazon. I will unabashedly say it. For book readers it is one of the best things ever invented. Seriously.
    To me one of the main points that this interview makes is the very last paragraph. I have tried to support some of the other web sellers before. But honestly they just are not as good as Amazon.
    I can speak from my personal experience – I do read even more now that I can get books digitally and at a lower price. I normally wait until the price drops to below paperback price. It is about convenience but mainly price. I can’t afford to buy too many books at $25 apiece; at $5 or less though I can buy one as soon as I am done with the last one. The only time I buy real books anymore are at used book stores.

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