Wesley MurchisonThursday,21 August 2014

The Snap:

Amazon and Hachette both agree the other company is too greedy. And so far, that’s about all they’ve managed to accomplish in an epic clash between the two corporate behemoths., Inc. and Hachette Book Group have dug in with no foreseeable end.

At first the spat was over the price of Hachette ebooks sold by Amazon. Failing to get Hachette to agree to their terms, Amazon tried using its market size as leverage by delaying delivery and eliminating discounts of Hachette titles. That in turn led many famous authors to organize a group called Authors United to criticize Amazon’s behavior.

Amazon responded by criticizing both Hachette and the authors while simultaneously misquoting George Orwell to support a spurious historical analogy. Further still, many independent authors have come out in support of Amazon against Authors United and against Hachette, which they think epitomizes the dysfunction that plagues the publishing industry as a whole.

The Download:

At the center of the is Amazon’s desire for a $9.99 cap on all ebooks. Hachette responded that the price is not sustainable. Amazon clams Hachette is only a partial representation of the overall sales at Lagardère Group. A spokesperson at Amazon told Publishers Weekly: “You have to look at the parent company–Lagardère Group–rather than just the Hachette division. Kindle books are only 1% of Lagardère Group’s sales. They can afford it, and should stop using their authors as human shields.”

Hachette argues that they cannot operate at a loss like Amazon, and that Lagardère Group will not subsidize their operation. Hachette is referring to Amazon’s controversial business model of long-term investment at the expense of low returns for shareholders and technology development tactic of selling Kindle devices at a loss while expecting revenue gains from increased sales in content.

Paradoxically, the most detailed information in the disagreement over price didn’t become public until the rancor was at its highest. Just before Authors United ad in the New York Times came to press Sunday, Aug. 9, the Amazon Book Team published an open letter early Saturday, Aug. 8. In both the Authors United ad and Amazon Book Team both ask supporters to email their opponent’s CEO to voice complaint. While Jeff Bezos has been particular quiet over the issue, Hachette CEO Michael Pietsch took the opportunity to respond to the emails, some of which was posted online.

Amazon argues in their letter that digital books should be cheaper than printed books and high-volume sales will make up for the reduced price.

“Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99,” wrote Amazon Team Book in their letter to readers.

In the most direct response to the other side’s argument in the entire feud, Pietsch points out that 80 percent of their catalog is already priced at $9.99 and that the remaining 20 percent of the catalog is priced at $11.99 and $12.99, which is half the price of the printed edition. Furthermore, Pietsch argues, in the email response to readers inspired by Amazon’s letter, that printing of books is only part of the cost of running a publishing house.

“Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish–hardcover, paperback, large print, audio, and ebook,” Pietsch wrote.

If Pietsch is being honest and Amazon’s pricing is only predicated on it being cheaper than a printed book then why the capped price of $9.99 instead of a set percent cut from the printed books price? An easy answers is that while the price of a printed book various the cost of producing an e-book is a constant.

A larger reading, however, of Amazon’s letter reveals a more likely motive. Amazon argues that ebooks are not competing with printed copies as much as they are competing with movies, games and apps in their, Google’s and Apple’s echo system. To be profitable, books needs to enter the digital marketplace at a price comparable to $3 apps and $5 movies.

In short, what’s at stake in this standoff is the right to control the price for two very different business models.

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Hat Tips:

Publisher Weekly, The New York Times, Image Credit: Flickr*


*converted to black and white

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