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How Hachette Can Win Its Negotiation With Amazon

31 May 2014

From Digital Book World:

As many of you know, Amazon and Hachette are in the middle of contract negotiations. Part of the process has involved Amazon putting increasing pressure on the publisher in various ways, like encouraging customers to buy books from other publishers and ceasing discounting on some Hachette titles, to name a few.

. . . .

So, how can Hachette as David beat the Goliath of Amazon?

. . . .

The same way the real David beat Goliath: Do something unexpected and bold.

I think that if Hachette wants to have a shot at beating Amazon in this round of fighting, it has to pull its books and ebooks from the retailer. And it has to do so publicly, explaining to its authors, the industry and as many readers as possible why it’s doing what it’s doing.

. . . .

At the same time, Hachette should offer a deal to Barnes & Noble and Nook, giving the retailer slightly better terms than it had before but demand very special treatment in stores and on the Nook. Hachette would make Barnes & Noble its exclusive nationwide retailer.

The publisher would also have to have its authors go on an aggressive public relations campaign, urging readers to abandon Amazon and buy their books at Barnes & Noble and on Nook.

Link to the rest at Digital Book World and thanks to Kris for the tip.

And, of course, Hachette would thus destroy this quarter’s revenues and profits and next quarter’s and its authors would suffer greatly and no author seeking a tradpub deal would do business with Hachette if he/she had any other choice.

One of the advantages that Amazon has over Hachette and other publishers is that Bezos plays a long game and, over many years, Amazon’s shareholders have been very happy with the results of that game.

Publishers, on the other hand, are owned by big conglomerates that play the quarter-to-quarter earnings game. Big problems with Hachette would mean big problems for its corporate parent, Lagardere.

Three days ago, Lagardere released a statement:

French media group Lagardere has targeted organic annual revenue growth of more than 3 percent through to 2018, helped by new markets and online sales, and said a dispute with online retailer Amazon would not affect 2014 sales.

The family-founded company with 10 percent shareholder Arnaud Lagardere at the helm has recently sold off several low-growth businesses as it seeks to address zero or negative organic growth over the past five quarters.

. . . .

Hachette’s chief Arnaud Nourry said he hopes for an early end to the dispute, details of which have not been revealed, adding that it should not affect online sales this year.

“All our energy is dedicated to finding a solution with Amazon, as with any other retailer,” he said at the investor presentation. “I hope it will be off in a few weeks.”

Link to the rest at Reuters

The clear message to investors is that Hachette won’t do anything to lose meaningful sales at its largest customer. Given poor performance over five quarters, it can’t afford more losses.

“A few weeks” vs. the long game. Who wins?

PG puts his money on the long game.

Amazon, Big Publishing

41 Comments to “How Hachette Can Win Its Negotiation With Amazon”

  1. There may be something sillier than referring to Hachette as ‘David’ in David vs. Goliath, but it would hard to think what.

  2. I’d like to thank DBW for so clearly illustrating how easy things are when it’s not your company or money at risk.

    Hachette can’t “win” this, and they know it. The best they can hope for is to not get fleeced.

    As for pulling their books, I’d imagine it would be hard to hear the press release over Amazon’s laughter.

    • Seriously, if Hachette pulled out it would barely be a blip on Amazon’s bottom line, but it would devastate Hachette’s. Anyone who can’t do that math needs to go back to 7th grade.

  3. Bob Kohn, he of the Amicus Comic Book brief, has an op-ed at the Financial Times and the New York Times that says much the same thing. Rah rah publishers, boo Amazon and DoJ, the publishers should beat that mean an’ nasty ol’ Amazon by pulling all their books.

    I think I’d like to see them try it.

  4. At the same time, Hachette should offer a deal to Barnes & Noble and Nook, giving the retailer slightly better terms than it had before but demand very special treatment in stores and on the Nook. Hachette would make Barnes & Noble its exclusive nationwide retailer.

    The publisher would also have to have its authors go on an aggressive public relations campaign, urging readers to abandon Amazon and buy their books at Barnes & Noble and on Nook.

    Yes, I think this is a marvelous idea. And when my favorite authors say shop at Barnes & Noble, I’ll just have to say, pfft, because the B&N website sucks rocks and I’ve grown to loathe the brick-and-mortar store. So if I can’t find their books reasonably priced at Amazon, in the format of my choice (Kindle) I’ll go back to what I was doing before, finding their books at the library or at the used book store, or just not finding them at all.

    For all the authors who believe Amazon is a nasty, nasty monster out to eat their souls, take a look at this snippet:
    http://www.digitalbookworld.com/2014/sales-of-hachette-books-up-70-at-walmart-after-retailer-announcement-big-discounting/

    Then ask yourself what it truly means. It means the publishers are pricing the books too high. It also clearly demonstrates who’s the Greedy Gus in this little war. What the publishers want is to get the full asking price of their wares from distributors, BUT since the MSRP is too high, they want the distributors to take the hit and discount the books.

    • I had a Nook Color before I had a Kindle Fire. I loved my Nook. I hated the B&N site and search features. And the review limitations. Clunky. Difficult. Sometimes, I’d type the EXACT book name and it would not come up. But I”d google the book name with the B&N in the terms and the link would go to the book. Seriously: the B&N own search would not yield their own inventory. I had to google it.

      So, I pretty much stopped Nooking and went hardcore Kindling.

      B&N has a super sucky site for those of us who are constantly “booking” it.

    • I didn’t see any mention of publishers paying their authors the same fees they pay their public relations firms for conducting “an aggressive public relations campaign.”

    • Not going to argue with the rest of your post but it seems you might not understand what book discounting is. Publishers set “cover price”. Authors earn royalties based on cover price. Book sellers buy books from publishers on consignment (in other words, they are all returnable, no questions asked) at a discount off cover price. Typically, this is a 50% discount. The price point between that discount and what the retailer charges its customers is the retailer’s margin. If Walmart is offering a 40% discount off cover price, Walmart has marked the price up 10% (possibly more, depending on its negotiated discount with the publisher) above what it paid. With ebooks, authors receive royalties off net, not cover price, so eBook discounts hit the authors directly, whereas print discounts hit in a more intangible, long term sense. When a retailer negotiates for higher discounts, it is not for lower prices on behalf of its customers (although possibly customers will benefit if the retailer chooses to pass those savings on) it is negotiating on behalf of its own bottom line. This is not a commentary on right or wrong, merely an explanation of how it works.

      • Yes and no. If Amazon has agreed to “wholesale” ebooks then the publishers get the wholesale price no matter what Amazon sells it for. Now, as to what the publishers are telling their authors, that’s a whole ‘nother story.

        In publishing contracts I have, there are long, long list of reasons included stating the reasons that my publisher either doesn’t need to pay me or can pay me a greatly reduced royalty. Deep discounts, remainders, side-licensing, library sales, etc., etc., etc. Any time the word “net” is mentioned, I can figure that I’m going to see pennies, if that much.

  5. I have a simple question about Amazon’s current pricing of self-published books (ebooks and POD), that’s come up in discussions elsewhere.

    I haven’t yet self-published, but am thinking about doing so. I was under the impression that self-publishers on Amazon have complete control over the pricing of their books, but I’m being told that’s not true. My impression has been that the author sets the price of their book at, say, 4.99, thus getting a 70% royalty of about 3.50 (minus transmission charges), and that even if Amazon discounts the book on their own, say to 3.99, the author still gets that 3.50 royalty. And similarly with POD. So that, while Amazon may discount as they wish, they still have to pay the “wholesale” price to the self-publisher.

    Is this not true? Someone is claiming that Amazon can change the price of your self-published books at their own whim, lowering them even to 0.99, and pay you the accordingly low 35% royalty rate of about 0.35, which is a tenth of your normal royalty. I have never heard this before. Is there any truth to it?

    Thanks to any self-publishers out there who have direct experience of self-pubbing with Amazon who can answer this.

    • I’d like to know, too.

    • For ebooks, you set the wholesale price and Amazon may discount it, but they still have to pay the ‘wholesale’ price to you, but if they price-match (which means that your ebook is available on some other retailer for lower price), then you have to eat the difference (which means that if your book is 2.99 and they price-match it to 0.99, they only pay you 0.35 royalties as they would if you set the 0.99 price yourself).
      Somebody correct me, if I’m wrong.

      • This is, to the best of my knowledge and belief, completely correct. And since Amazon royalty statements are pretty easy to read, I’m fairly confident that my knowledge and belief are accurate.

    • You control your prices at Amazon (and at all the major retailers, except Google Play which ignores your price and generates discounts).

      However, Amazon (and other retailers) require “best price vs competitors”. So, if you set your $4.99 book on sale for $0.99 at B&N and don’t lower the price at Amazon, Amazon will “price match” if it catches you (and they have pretty good search algorithms) and lower your Amazon price to $0.99 to match (thus moving you to the 35% category from the 70% category).

      This is often an issue when you set up a temporary sale at, say, Amazon & Kobo & B&N. When you re-raise the price to normal, Amazon may have a lag (older price-match data to the sale price on the competitors), so you have to keep an eye on it. If it lingers, contacting Kindle KDP help will fix it.

      I don’t know why, but Amazon seems to show mercy towards price matching Google Play, perhaps recognizing that the publisher can’t do a damn thing about their arbitrary discounting. Otherwise, there’d be a price match death spiral all the way down. At least, I haven’t run across anyone complaining about Amazon price matching to Google Play.

      • I’ve had one book that’s been price-matched on Amazon to align with a GP-imposed discount ever since the beginning of March. Honestly, the difference is slight (the regular price is $3.99, GP has discounted it to the bizarre price of $3.03, hence Amazon does the same) and I’m making up the difference that I would have earned at Amazon on GP.

        If they were to price-match my books more extensively, I’d just pull them off GP. It wouldn’t be worth losing THAT much revenue on Amazon; GP sales are okay but not as good as Apple, so I feel I can sacrifice my books on that platform in order to maintain good pricing on Amazon.

        Most of the time, the price-match discounts won’t have a negative impact on your sales and might actually help them.

    • That certainly hasn’t been my experience. Amazon has dropped my ebook prices on several occasions, but they ALWAYS pay me my full cut at the price I set. Unless they see your book sold for less somewhere else, then they can drop your book and pay the lower royalty, which is how people get their books permafree. But as long as you use the same price for everyone, everywhere, you should be able to count on the 70% cut of your chosen price, regardless of what Amazon does for the customer.

      • This is the way it’s worked for me, and I generally have a price spread of $0.99 to $5.99 across the markets for my different books. Amazon has discounted them but I always get wholesale.

      • With the exception of sales to countries where they only pay 35% regardless (unless you’re enrolled in SELECT).

        • And those are the ones where I double the currency price to make up the difference.

          Just to add–if you want to price-match to permafree, you must set the price on Amazon to the lowest possible ($0.99) or you get a nasty-gram from KDP about it. Okay, not nasty mean, but a warning.

    • Thanks for clarifying that, everyone.

      • Besides the price-matching, there are a couple of other programs where you might see less than 70% of retail, but those are voluntary.

        If you enroll your book in KDP Select (which, among other things, enables Amazon Prime members to borrow your book for free), the borrows will be compensated out of a pool that Amazon sets aside every month. How much you get depends on how much money is available that month, how many other books are in the program that month, and how often your book is borrowed. You may or may not see an effective rate decrease from this. You may even see an increase if the book is has a low price to start with (each borrow nets the author the same amount, regardless of the original list price).

        If you have a print version of your book, you can enroll the book in MatchBook. This program lets people who have the paper book get the ebook at a discount. In that case, you’ll get paid based on the discounted price rather than the list price (I think that’s how it works, but I haven’t used MatchBook myself… someone who has, please comment if this isn’t correct).

        Again, though, both of these programs are voluntary.

    • If Amazon drops the price of your book because YOU have lowered the price of your book elsewhere (or the retailer has, re: Google Play, or they are slow to catch up after a price drop and return), then they are price-matching, and your cut drops to the lower percentage bracket.

      HOWEVER, if Amazon chooses to discount your book (which yes, happens to indies from time to time – in fact, one of my titles is currently discounted .1 cent, lol) then they still pay you the full amount based on your original cover price.

      • They do this to me from time to time, and I have no idea why. I don’t mind – as you said, I still get the full royalty if it’s not price-match – but it’s weird.

  6. Who blinks first? Amazon has a long range perspective, and there are four more Big-Pubs coming to the table for contract negotiations and they cannot give the farm away by agreeing to Hachette. Hachette must maintain or beat last quarter’s profits. Losing the Amazon revenue is not something Hachette can treat lightly. And if they pull their books from Amazon, how many readers will miss Hachette? The authors yes, but if the authors disappear from Amazon along with Hachette, is Amazon going to lose as much revenue as Hachette and its authors? I’m sure they’ll come to an agreement, but it will be on Amazon’s terms.

  7. What are the benefits to Hatchet of dragging this out one more week, let alone a few?

    Can anyone name 3 benefits?

    If not, what reason is there for Hatchet not to fold on this one, and possibly play another hand in that long game later on?

    Can they continue to play the game if they don’t fold? Are all their chips currently on the table here?

  8. I never paid attention to publishers when searching for new books to enjoy.

    However, with this Amazon Hachette dust up I’m leaning toward paying more attention to Hachette.

    I’ve gone from amused, to annoyed, to pissed and it might be time to eliminate Hachette published books from shopping cart.

    Not a boycott, mind you. Just my personal F-O toward Hachette’s imbecility.

    Dan

  9. Have authors recommend that they purchase their books at Barnes and Noble and the Nook? So much for looking out for the indie bookstore and switching from one Goliath to another

  10. So, dump Amazon and do a deal with B&N. It’s certainly a bold move. But also a US-centric one. They would have to do a similar deal with retailers in other countries. That’s a lot of separate negotiations.

  11. Hachette Author

    As a Hachette author (a very unhappy one), I wouldn’t even think about telling my readers to abandon Amazon. I couldn’t give a fig where they buy my books, just that they do.

    This is Hachette’s problem to figure out and the time it’s taking them to do so is infuriating. When my next contract arrives, I’ll be returning it to them with a big fat NOPE.

    • It’s so refreshing to know that at least one Hachette author sees this for what it really is. I’m so sorry you’ve been hit in the pocket book by this b.s., too. It sucks.

      I hope you’ll be joining the indie ranks with your next book (if your current contract will allow it.) And yeah, NOPE the hell out of the next contract from these jackasses. Nothing is worth this kind of b.s. treatment. I’m just sickened by their lack of give-a-sh!ts for the authors who make them all their money, yet they present this “Oh, won’t somebody think of the authors!!1!” face to the media. Gross.

      *hugs*

  12. Okay, so feeling silly, I took this and made a Transformers: The Movie analogy. Hey, “Amazon” and “Unicron” do rhyme, after all…

    Dare! Dare to believe you can survive…

  13. I’d love it if they WOULD pull their books. Yet more sales for indies, yet more authors vacating Hachette to indie-publish, and zero effect on Amazon.

    I have a feeling that Amazon’s loss of profits from Hachette pulling out would be about as devastating as a flea bite on an elephant’s hide.

    But as PG pointed out, Amazon is clearly the biggest sales channel for Hachette, and their investors wouldn’t be thrilled if they flounced right off Amazon. Bummer how something like the opinions of shareholders have so much impact on all these authors who are stuck with Hachette. God, I’m glad all the Hachette imprints rejected my book when they did! There but for the grace of something go I.

  14. 1. Remove your books from Amazon.
    2.
    3. Win.

  15. I could totally see Hachette pulling their titles.

    For one thing, they have no other move. After the beating Amazon is taking from the Hachette drones, Amazon might as well hold out for an outright win. Which means Hachette either surrenders or walks away for good.

    For another, the BPHs (and their apologists) clearly have short memories and have forgotten that in 2010 Amazon survived without *penguin* titles for weeks on end. A refresher would do them good.

  16. “I think that if Hachette wants to have a shot at beating Amazon in this round of fighting, it has to pull its books and ebooks from the retailer.”

    LOL. http://www.youtube.com/watch?v=cJe6-afGz0Q

  17. Oh yes, Hachette! Please do this! Follow this most excellent advice from DBW. Immediately, if not sooner. Go jump aboard the good ship B&N, and by all means, encourage the rest of the Big 5 to join you. Make B&N your exclusive, trad-pub sanctuary, a paradise free of all those steerage-class indie authors. Hey, they’ve already kicked all the indies off their Nook bestseller lists, so you’re halfway there! Steven Zacharius will be giddy with glee. He and James Patterson and Malcolm Gladwell can form a string trio and fiddle a merry tune on the aft deck… as you all go swirling down to your demise together.

  18. Hachette is up the creek without a paddle. They either give into Amazon or take a bottom line hit they can’t afford.

    The only negotiating advantage they have is media trying to stir up public pressure on Amazon. But that is a Hail Mary if ever there was one. Hard to convince the average person out there that they should come to a near-invisible corporate publisher’s aid against the retailer they spend so much money at.

    The chance that this media campaign will work is the David vs. Goliath story. But they’re sling-shooting air-rocks, so they don’t even have David’s odds.

    But this will all look like a backyard spat of kids when Random Penguin contract comes up for negotiation. I believe they wanted a huge publisher to force Amazon into a negotiating position. Like collusion, but legal.

    But RP will have to be careful. They publish enough of the books they could be considered a monopoly among traditional publishers. If they end up abusing that, I see another DOJ settlement in their future. But that negotiation will be the one to watch, and where the most ink will be spilled.

    The Hachette negotiation is the pre-show. Stock up on popcorn before RP comes up to bat.

  19. This is quite possibly the dumbest thing I’ve ever read. And I’ve read the script for Transformers 2.

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