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Aug 18

Amazon, Hachette and “the wretched $9.99 price point”

Print is dead.

At least, that’s what the Big Five publishing houses fear. One company is fighting the potential loss of sales and its possible demise in a public battle that affects readers and writers alike.

Before 2007 or so, the only way an author’s story was read was through a print copy in brick-and-mortar bookstores. The only way to get into a bookstore was through a major publisher. Knowing their control, these large publishers chose the stories and genres people read, the prices at which books were sold and what the authors got paid.

Now that snippy digital upstarts like me are snooting our way in and circumventing the system they so strategically designed, publishers are no longer needed. With digital formats, there is no gatekeeping; I can write and publish any book at any length in any genre I choose and at any price.

Without hardcover or paperback books, the publishers’ choking grip on the market disappears with the turn of a page. The Big Five lose all public prestige, respect, expertise, control and sales. Especially sales.

Welcome to the battle between Hachette and Amazon.

Hachette wants to charge high e-book prices to discourage electronic sales and boost paper sales. Amazon wants to keep prices of e-books favorable to consumers. This dispute has been going on for years. To understand the impact of today’s feud, let’s go back in time for a brief history….  (Shout out thanks to J.A. Konrath’s timeline for the format inspiration that I use.)

NOVEMBER 2007

Amazon releases the company’s Kindle e-reader.

NOVEMBER 2009

Barnes & Noble introduces the company’s Nook e-reader.

Retailers continue buying books and e-books using “wholesale pricing,” an agreement in which publishing houses charge half the printed cover price to those retailers. The booksellers then compete with each other by discounting books or offering sales. At this time, hardback book prices range from $15-30.

Amazon is a large company with a large share of the e-book market. They rarely sell at full price, offering book titles below the printed cost, even as far down as $9.99 for bestselling novels. The Big Five publishers make a lot of money through the sales of higher priced hardcover books, and this consumer-friendly price point might encourage more digital sales than paper. These companies didn’t want that to be the standard that consumers would expect to pay.

JANUARY 2010

Apple prepares to release its iPad, but if they offer books in their iBookstore at a price to compete with Amazon, the company will lose money. A publishing executive blames Amazon’s “wretched $9.99 price point.” Apple and the Big Five publishers work out an agreement that benefits everyone. The publishers switch book distribution away from wholesale pricing to the new and improved “agency pricing” model. In this agreement, publishers control the price of the e-book rather than the retailer. Sales percentages are split favorably, as well: 30% to Apple and 70% to publishers. In this scenario, consumers who choose to buy e-books instead of physical copies are, in a sense, be punished for affecting paper sales.

The only caveat is that all publishing houses have to sell this way to all of Apple’s competing retailers, including Amazon. Amazon pushes back, but with everyone else agreeing to this method of distribution, the company has to accept these terms. Book prices on Amazon’s site rise to $12.99 and $14.99. The term “colluded” is later used when referring to this agency pricing arrangement.

APRIL 2010

Apple releases the iPad.

JULY 2010

Amazon reports that digital e-books outsell hardcover books for the first time in history. The agency pricing continues for two years before the U.S. government steps in.

APRIL 2012

The U.S. Justice Department (DOJ) accuses Apple and the publishers of conspiring to raise e-book prices and filed a civil antitrust lawsuit. By developing and utilizing agency model, “the publishers prevented retail price competition resulting in consumers paying millions of dollars more for their e-books” especially for the most popular titles by big-name, best-selling authors.

Three of the Big Five publishing houses, which include Hachette, settle immediately. Retailers resume discounting and offering sales. The publishers pay financial restitutions to consumers and are “prohibited for two years from entering into new agreements that constrain retailers’ ability to offer discounts or other promotions to consumers….” The DoJ settled with two other publishers and Apple by 2013, yet Apple appeals the decision.

Now fast forward to the present year. Apple’s appeal is ongoing as of this post.

JANUARY-FEBRUARY 2014

The 2-year contracts are ending, so new ones need to be negotiated or extended. Amazon sends a contract to Hachette. Because they do not receive a response from Hachette, Amazon removes the site’s pre-order buttons and stops discounting Hachette titles.

MARCH 2014

Hachette’s contract to sell books with Amazon expires, but Amazon extends it into April while both sides negotiate. Because the outcome is uncertain and shipping dates cannot be guaranteed, Amazon reduces the print inventory of Hachette titles.

APRIL 2014

There is now no longer any contract for Amazon to sell Hachette titles on Amazon. Hachette finally makes counter offer, Amazon rejects it.

MAY-JUNE 2014

Hachette authors notice slower sales, so Amazon makes several proposals that they and Hachette offer financial provisions for the authors during negotiations. Hachette declines all of them.

JULY-AUGUST 18, 2014

Here’s when media runs wild with statements, press releases and proposals, oh my!

Hachette compiles its press releases and statements regarding Amazon here.

Propaganda or perspective? Article from Random House editorial assistant Alison Herman with intriguing links at the end.

Big Five authors want print to thrive. Who can blame them? Without physical books, bestselling authors like Stephen King, John Grisham and James Patterson lose their dedicated personal assistants and vacation beach houses. They each become “just another little writer” in a writer’s ocean.

There is a letter from Douglas Preston, a Council Member of the Author’s Guild, signed by authors supporting Hachette. As of August 9, the letter had approximately 900 signatures, published as a full 2-page $110,000 advertisement in the New York Times as “A Letter to Our Readers.”

There is a petition by Change.org urging readers and writers to support the company who supports readers and authors. As of August 9, the petition reached 8000 electronic signatures. (8466 as of my post)

On August 9, The Amazon Books Team releases a letter discussing their point of view from within the negotiation. There are some good links at the end. It’s worth a read through.

The email reply from Hachette CEO Michael Pietsch in response to Amazon’s August 9 letter request for consumers to contact executives about the negotiations.

Amazon releases a statement justifying the $9.99 price point: “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.”

And here we are, readers and writers, reeling in the wake of potential propaganda from both sides. Marketers in any company can spin numbers any way they want to make the numbers show in their favor. I don’t necessarily believe in Amazon’s exact number or those calculations empirically, but the rationale behind it is solid. If I had $15, would I spend it on one book? Am I more inclined to buy a $9.99 book and a coffee and muffin to enjoy while reading the book? If a purchase like that gives me that pleasure, then I’m encouraged to buy another similarly priced book for a similar experience.

“Why should e-books cost as much as, or more than, a printed copy?” my husband asked me. “There’s no shipping or printing.” He’s a chemist and not in the publishing industry. If this is so elementary to someone outside the industry, how is it lost on someone in the publishing business?

I’m not necessarily pro-Amazon, but I am pro-information. Some people do not have the drive or desire to do it all, so turning their work over to a Big Five publisher is the best option for them. But how is Hachette assisting and nurturing its authors when it let their contract with Amazon expire, and thus all its authors’ contracts as well?

If Amazon wins this battle, they will dominate the market…for now. At some point, all Amazon authors could be stuck with a business model that no longer offers today’s benefits, and then Amazon becomes the Big One publisher. If that happens, authors are not stuck.

Unlike print, where the only way to publish was through a publisher, there are now numerous electronic options. No doubt any number of smaller publishers and retailers will develop online stores. Any author can sell directly from their website. These were options never available before.

Who needs who more, Amazon or Hachette?

Who, or what, do authors need?

Print may be dying, but books and stories never will.

8 comments

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  1. Book Lover

    It is difficult enough to decide what to write, how to write effectively, what audience we wish to reach, and now we have to decide the best way to publish our stories for maximum exposure. And still I write!

  2. Wendi

    What a great conversation you’ve created Diana. I think I agree with Phil. I’m also sad because I’m one of the people that wants to have my favorite books in physical form. We’ll see what happens as the years pass in the publishing world.

  3. John McCarthy

    This battle with print publishers vs e-publishing has been going on for awhile. Diane, thanks for this coherent breakdown of the two sides’ positions. It amazes and saddens me that the print publishers still have their heads in the ground. The reference to Douglas Preston caught my attention because he has had many books published through the traditional print publishers. It smacks of self-interest for him to start a campaign within the writer’s guild. He’s essentially saying that the status quo from 5 years (and past then) is where things should stay. Hmmm, that means that the print publishers continue to gate-keep who gets published, deciding for the masses what they should read.

    I agree with Phil that there’s a place for print via these publishers. What Amazon does is let the free market via consumers decide what’s good to read through their purchasing power. Amazon also gives 75% of sales to the author. Print publishers offer up to 12% to the author. Now Douglas Preston probably gets a sizable advance, as he should. Most of the authors in the Writer’s guild do not get much, if any, advance.

    As Diana ends, which side benefits the writers? Right now it’s Amazon, until that 75% cut scales back…

  4. Sue Remisiewicz

    Thank you, Diana, for breaking down the facts of this debate without the emotion and rhetoric that has often accompanied it. The economic rule of supply and demand states that when supply is low but demand is high, prices should be higher. When supply is high but demand is low, prices should be lower. In the world of eBooks, supply is not a factor. What then is the factor that should drive the price of eBooks?

    I think Hachette is saying they have guaranteed high demand for their books based upon the notoriety of its pool of authors. Ergo, they think that a higher price point is appropriate. Based on this, their response to Amazon’s example is likely to be that it may be true for other authors, but if it is a Hachette author the book will sell 179,000 copies at $14.99 thus making $2,683,210 total revenue.

    Amazon, on the other hand, is setting a price point based on what they think the market will bear. Considering the amount of books they sell, their figure is probably more than just an educated guess. I can’t imagine they are picking this price point blindly. There is likely a lot of analysis to back up their position.

    It is an interesting roll of the dice on both sides that has implications not just for authors, but for any industry where supply no longer drives prices. Where this debate goes has broad implications and will be interesting indeed.

  5. phil rosette

    I have to side with Amazon with this one. Print publishers are trying to use old rules in a new math world. The profit margins in e-publishing – author’s/illustrator’s time aside for a minute – are much greater and the risks (overstock, under print, upfront costs, returns, storage, logistics, etc) are virtually nonexistent. Publishers are becoming as antiquated as landlines.
    But publisher’s are still needed because people will always want to “own” the books that matter the most to them. (you don’t really own e-books, do you?) Going forward it will be e-publishing telling print what to put through the presses based on e-sales first, a complete Topsy-tervy to what we had just 10 years ago. Thanks for sharing.

    1. Kelly Bixby

      This is a strange new world. I’ve been wondering whether I will opt for traditional (print) or e-publishing when my first book is completed. Perhaps by that time, the decision will be an easy one.

    2. Kelly Bixby

      Phil, how do you think this preference for digital will affect the value of old, collectible books?

      1. phil rosette

        Actually, wait for my October blog on this very subject.

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