On the Amazon and Hachette Agreement

On the Amazon and Hachette Agreement

Wesley MurchisonWednesday,26 November 2014

The Snap:

The dust has settled in the battle between Amazon and Hachette. A fog of war, however, still clouds the publishing industry. The news broke in a joint press release by Hachette and Amazon that celebrated a “new, multi-year agreement for e-book and print sales in the US.” Michael Pietsch, CEO of Hachette, underscored the fact that the agreement gives his company the ability to set e-book prices, calling Amazon’s concession an “enormous marketing capability with one of our most important bookselling partners.” On the other side of the negotiating table, David Nagger, vice president of Kindle, focused on the deal’s “financial incentives for Hachette to deliver lower prices.”

On the surface, the deal looks like a win for Hachette and the continuation of the agency model of e-book pricing. Yet if market trends continue, the next time Amazon chooses to pick a fight with a large publisher, they’ll be stronger and potentially more tactful in attempting to fundamentally restructure the e-book market.

The Download:

Amazon has made new enemies. The company’s aggressive tactics of delaying shipment, preventing preorders and removing discount of Hachette books backfired and exposed the online retailer to a chorus of criticism. The idea was to put pressure on Hachette to forfeit its control to price their e-books listed on Amazon. It’s no secret that Hachette and other four publishers of the Big Five price their e-books to protect their print copies. According to the Economist, publishers “protect the profit margins on their print books and charge high rates for e-books to do this.” It’s obvious that the cost of selling another e-book is not as high as a printed copy. That’s why Hachette, at the height of the dispute, argued why they wanted to sell 20 percent of their catalog above the $9.99 cap proposed by Amazon. Amazon countered that Hachette could recoup profits my selling more e-books. Hachette, however, felt that money was being left on the table for popular titles.

Amazon miscalculated the short-term cost of blocking Hachette books against the long-term cost of losing that profit margin. Worse, they got wrong how much their size in the electronic and print book markets concerned notable authors. These two factors combined to create a near perfect storm of a backlash. As the names of famous writers continued to be added to the petition against Amazon, the Seattle-based company was in negotiations with another publisher, one larger than Hachette — Simon & Schuster. In fact, Amazon and Simon & Schuster were making real progress because they announced a deal in October. A deal that didn’t include any of the sticking points that instigated the standoff with Hachette. That signaled to industry watchers the end of the dispute with a likely deal along similar lines.

Even though they struck a deal with Hachette, Amazon still has to make nice with the group of authors that rallied to Hachette’s side. Douglas Preston, an author of thrillers published by Hachette, started Authors United to shame Amazon publicly for their heavy-handed negotiating tactics. Preston was successful in attracting not just popular authors, but also literary luminaries, many of which are not signed with Hachette. They accomplished their goal by publishing an ad in the New York Times and writing an open letter to Amazon’s board of directors. Furthermore, they are still in the process of requesting an investigation by the Department of Justice into Amazon’s practices. Even with the new agreement, Preston has told reporters that Authors United still intends to pressure the DOJ about investigating Amazon.

Preston even believes that Author United was helpful in Amazon making an agreement with Schuster. He told Vulture that, “the people at Simon & Schuster are absolutely convinced that they would not have been able to settle if it weren’t for us,” he added that though Authors United will back down, “if Amazon thinks that they’re gonna pull this again, we will be back.”

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Hat Tips:

Digital Book World, Vulture, Economist, Image Credit: Flickr

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