The Amazon Hachette Dispute Comes to a Pyrrhic End

18 November 2014

From Mark Coker via The Huffington Post:

Amazon and Hachette announced a settlement last week in their long festering contractual dispute. The publishing industry breathed a collective sigh of relief. But is it really over? The dispute signals a new chapter in Amazon’s strategy to favor suppliers that bow to its desires.

. . . .

In carefully worded statements last week issued by Amazon and Hachette – neither of which boasted of victory – we learned Hachette will retain Agency pricing control yet conceded to certain unspecified Amazon contract stipulations intended to encourage Hachette to offer lower ebook pricing.

It’s not easy to pick winners and losers. As with most wars, even winners can be losers.

Here’s my score card of winners and losers, along with speculation on long term implications.

  • Hachette *mostly* won, but is now boxed into a position where faithful authors will expect higher net royalty rates for ebooks as well as other perceived reforms from publishers. The Author’s Guild has already hinted as much. In a blog post last week commemorating the agreement, Authors Guild president Roxana Robinson took the opportunity to urge Hachette to raise ebook royalty rates for authors.
  • Amazon mostly lost, because it appears Agency wasn’t dismantled or critically injured. Amazon will likely seek revenge through other means (see below).

. . . .

  • Author affinity for publishers damaged. Amazon partisans orchestrated a rage-fest against traditional publishers, further eroding the once divine reputation of traditional publishers. Amazon partisans used this dispute as an opportunity to paint all publishers with the broad brush that publishers don’t care about authors, want to exploit authors, collude on pricing, want to overcharge customers for ebooks to protect their print businesses and protect brick and mortar bookstores, and who knows what else, strangle kittens? All good conspiracies are grounded in a small amount of truth. Yes, no doubt, publishers have much opportunity to bring reforms that benefit authors, though the vitriol was excessive and toxic. I also believe that indie authors are well-served by a thriving and profitable traditional publishing industry because it creates more publishing options for all authors. When indies go too far to tear down publishing houses, they risk tearing down their own house as well.
  • Authors attacking authors. Successful traditionally published authors – in the form of Douglas Preston’s Authors United initiative – who stood by publishers were attacked by the Amazon partisans. This, to me, was one of the most unfortunate outcomes. When authors are attacking authors, you know the world has gone mad. It was all the sadder that most of these attacks came from the indie author community. Indies should be better than this.

Link to the rest at The Huffington Post

In Amazon/Hachette deal, ebook agency pricing is a winner

17 November 2014

From GigaOm:

In the deal that Amazon and Hachette Book Group finally reached Thursday after months of bitter negotiations, we don’t really know which side “won,” if one side did. But one survivor — perhaps surprisingly — was agency pricing for ebooks, the practice through which the publisher sets an ebook’s price and the retailer takes a commission.

Hachette said in a letter to authors and agents:

The new agreement delivers considerable benefits. It gives us full responsibility for the consumer prices of our ebooks. This approach, known as the Agency model, protects the value of our authors’ content, while allowing the publisher to change ebook prices dynamically to maximize sales.

That wasn’t a foregone conclusion. In 2010, Amazonwas vehemently opposed to agency pricing, though it ultimately capitulated. Agency pricing was at the heart of the of the Department of Justice’s lawsuit against Apple and book publishers in 2012, in which the DOJ accused Apple and the publishers of colluding to set ebook prices.

The DOJ never actually said that agency pricing was illegal; rather, it alleged that Apple and the publishers illegally conspired to adopt the model at the launch of the iBookstore in 2010.

. . . .

While we obviously don’t know all of the details that Amazon and Hachette agreed on, here are the things that Amazon publicly said about ebook pricing at various times during the negotiations:

  • “A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book.” [Kindle Forums post attributed to “The Amazon Books team,” July 29, 2014]
  • “This discussion is all about e-book pricing. The terms under which we trade will determine how good the prices are that we can offer consumers.” [Amazon exec Russ Grandinetti to the Wall Street Journal, July 1, 2014]
  • At an ebook price of $9.99, “we believe 35% should go to the author, 35% to the publisher and 30% to Amazon. Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices. We had no problem with the 30% — we did have a big problem with the price increases.” [Kindle Forums post, July 29, 2014]
  • “While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author.” [Kindle Forums post, July 29, 2014]

Here is what we know about the deal announced Thursday:

  • “We are pleased with this new agreement as it includes specific financial incentives for Hachette to deliver lower prices.” [Amazon’s David Naggar, press release] (This is the same thing that Amazon said about the deal itreached with Simon & Schuster in October.
  • “Importantly, the percent of revenue on which Hachette authors’ ebook royalties are based will not decrease under this agreement.” [Hachette CEO Michael Pietsch, press release]

. . . .

Hachette said in its letter to authors that the percentage of revenue on which they take a cut won’t change. But since we know that Amazon is giving Hachette financial incentives to keep its ebook prices low, perhaps Hachette will be penalized with a smaller cut of the sale if it prices ebooks above that previously set ceiling, even if it passes on the same amount to authors that they would have gotten previously.

Link to the rest at GigaOm

Nobody who really knows is talking about the Amazon/Hachette deal, but it appears that Hachette will have the ability to prevent Amazon from doing at least some of the discounting of Hachette’s books that it does now.

Since Big Publishing has attempted to use ebook pricing to protect the sales of physical books in physical bookstores in the past, PG suspects it will continue to do so in the future. If this is the case, Hachette ebook prices on Amazon will be higher than Amazon would set those prices if the folks in Seattle had unfettered pricing discretion.

If PG’s suspicions are anywhere close to correct, it appears that indie authors will continue to be able to undercut the price of ebooks from Hachette while earning royalties from KDP that are much higher than Hachette authors receive.

PG says that indie authors are much smarter about pricing ebooks on Amazon that Big Publishing is, if for no other reason than indie authors are not concerned about anything other than selling the most ebooks possible. Like Amazon, indie authors don’t have any legacy sales channels to distract them from setting an optimum price for ebooks.

Trying to protect a legacy business with legacy margins is a classic mistake that established business organizations make when faced with a technology disruption that allows lower-priced competitors into a marketplace. Doing so allows the lower-priced competitors to survive and thrive. And eventually put the legacy model out of business.

As Amazon-Hachette Dispute Ends, Authors Want More

14 November 2014

From Bloomberg via Yahoo Finance:

Now that the dispute between Amazon.com Inc. (AMZN) and Hachette Book Group has ended, the next disagreement may pit authors against publishers over how to share e-book revenue.

Writers who stood by Hachette through the Amazon negotiations over print and digital book sales want to be rewarded for sticking by the publisher. Now they’re asking Hachette to share more of the money it receives on e-book sales with them.

. . . .

At stake is revenue from sales of digital books. Under the current structure, an e-book sold by Amazon for $9 brings in about $2.70 for the Web retailer and $6.30 for the publisher and writer. A smaller fraction of that — about $1.58 — then goes to the author. The writers contend that their share should be greater, because there’s no manufacturing or distribution cost associated with digital books.

“It is our hope that Hachette, in light of the loyalty its authors have shown throughout this debacle, takes this opportunity to revisit its standard e-book royalty rate of 25 percent of the publisher’s net profits,” Roxana Robinson, president of the Authors Guild, said in a statement following today’s announcement of a resolution between New York-based Hachette and Amazon.

. . . .

“There’s definitely a feeling that the amount going to authors should be higher,” said Steven Gould, an author and president of the Science Fiction and Fantasy Writers of America.

Link to the rest at Yahoo Finance and thanks to Chris for the tip.

PG says Whoopee!

Amazon, Hachette End Publishing Dispute

14 November 2014

The Wall Street Journal has updated and expanded its initial report on the Amazon/Hachette deal:

Amazon.com Inc. reached a new multiyear publishing contract with Hachette Book Group covering print and digital books, bringing to an end a bitter dispute that showed how the online retailer’s growing clout is roiling the book industry.

Neither side claimed victory and it may be that both Hachette and Amazon made concessions in the end.

. . . .

“It’s a victory for Hachette in that they get to set the consumer prices of their e-books, while Amazon wins in that it has given Hachette an incentive to keep prices lower,” said James McQuivey, an analyst with Forrester Research. “This deal should have been done a lot earlier. Emotions took over, and they both began talking like they were protecting the free world.”

. . . .

The standoff became a proxy for a bigger existential battle between the publishing establishment and Amazon over the future of the book business. For many publishers and authors, the fight illustrated how much power and authority Amazon has amassed in recent years, in part because of the retailer’s reliable shopping experience but also because Amazon kick-started the digital books market when it launched its Kindle e-reader in November 2007.

. . . .

Like the publishers, Amazon was under pressure to reach a deal before the holiday shopping season, when the e-commerce giant typically pulls in more than a third of its annual revenue. Books and e-readers, like the Kindle, are a popular gift.

Over the past few months, Amazon had pricing disputes with Walt Disney Co. and Time Warner Inc. ’s Warner Bros. studio. The contract disputes came to light after Amazon limited preorders of physical copies of the companies’ movies.

. . . .

Amazon has found some support during the dispute from writers who use its self-publishing tool to release their books online. Indeed, the fissures between traditionally published authors and self-published writers became more evident, with emotions rising as the standoff dragged on.

Mr. Patterson, known for his Alex Cross thrillers such as “Along Came a Spider” and children’s works including “Middle School: Save Rafe!,” appeared in an online video last month in which he criticized Amazon, for example.

But some self-published authors rushed to Amazon’s defense. Tom Knighton, who released a science fiction novel through Amazon this year, posted a comment taking Mr. Patterson to task. “He’s defending a system that hurts a lot of authors but has given him $90 million a year,” said Mr. Knighton, referring to Forbes’ estimate of Mr. Patterson’s pretax earnings for the 12 months ended June 2014.

“It’s the same system that offers predatory contracts for first time authors so eager to be published that they give away their copyright for their entire life.”

Mr. Patterson, through a spokesman, declined to comment.

Link to the rest at The Wall Street Journal (Link may expire)

Amazon and Hachette Come to Terms

14 November 2014

From Hugh Howey:

Finally. Hachette has put an end to their nightmare of a standoff and has agreed to terms with Amazon. This is great news for book buyers and Hachette authors and the industry in general. It comes right on the heels of Simon & Schuster signing a multi-year deal with Amazon for both print and ebooks, and the wording of that announcement was practically identical to the wording of the Hachette announcement today. What does that tell us?

It suggests to me that Amazon offered Hachette and Simon & Schuster the same deal. But what took Hachette most of 2014 to agree to took S&S a single offer / counteroffer.

. . . .

I don’t know how the order was picked, but Hachette drew the short straw. This meant two things: They had to negotiate with Amazon without knowing if their fellow publishers would fall in line and help pressure the retailer as they did in 2009, and it also meant that Hachette had six months less sales data to go on to judge the fairness of what Amazon was offering.

A year ago, jacking up ebook prices to protect print seemed like standard operating procedure. Over the course of this year, publishers have watched operating margins go up due to the rise in ebook sales, and many titles have moved a lot of units by employing sane pricing. In a way, Amazon was offering a deal based on what they saw coming, while Hachette was rejecting that deal based on what they saw in their rearview mirror.

. . . .

Twice now, Hachette and major publishers have waged wars with Amazon over the price of ebooks. They waged these wars with big box discounters like Barnes & Noble. Conflating our love of books with the virtuousness of those who package them is a very bad idea. Publishers belong to multi-national, multi-billion dollar corporations. They need to make profits. They do this by pushing prices up on readers and pushing wages down on writers. I don’t blame them for that (though I do try to pressure them to be more fair to both parties).

. . . .

We need to do better in the future. Coverage of this industry should shift to coverage on what’s being done for readers and what’s being done for writers. These are the only two parties that matter. If publishers disappeared tomorrow, writers would continue to write great works of fiction and non-fiction. If Amazon disappeared tomorrow, readers would still seek these works out. The middlemen are not necessary. They are not crucial. They exist to serve readers and writers only.

Link to the rest at Hugh Howey and thanks to Patrice for the tip.

Amazon, Hachette End Publishing Dispute

13 November 2014

From The Wall Street Journal:

Amazon.com Inc. reached a new multiyear publishing contract with Hachette Book Group covering print and digital books, ending a seven-month dispute that showed how the online retailer’s growing clout is roiling the book industry.

The two sides said Thursday that new e-book terms will commence in early 2015. Under the new pact, Hachette will set the prices of its digital books. The companies said Hachette would get better terms when it “delivers lower prices for readers.”

. . . .

The pact comes less than a month after Amazon and CBS Corp.’s Simon & Schuster publishing arm struck a multiyear print and digital contract that allows Simon & Schuster to set the consumer prices of its e-books while enabling Amazon to discount digital titles in certain situations.

That agreement was widely seen as putting additional pressure on Hachette as the holiday season neared because of Amazon’s clout with consumers. A June 2014 online survey by researcher Codex Group LLC found that Amazon had 40% of the new book market, accounted for 62% of all print books sold online, and controlled 64% of the e-book market.

Simon Lipskar, president of the literary agency Writers House, whose clients include a number of Hachette authors, welcomed the news.

“Our writers have been suffering terribly because their sales have been significantly diminished as a result of this dispute.” Mr. Lipskar said. He said it was possible that there would be long-term consequences for some authors because of diminished sales when it comes to negotiating new contracts.

Link to the rest at The Wall Street Journal (Link may expire)

Amazon and Hachette Resolve Dispute

13 November 2014

From The New York Times:

Amazon and Hachette announced Thursday morning that they have resolved their differences and signed a new multiyear contract, bringing to an official end one of the most bitter publishing conflicts in recent years.

Neither side gave details of the deal, but both pronounced themselves happy with the terms. Hachette gets the ability to set the prices on its e-books, which was a major battleground in the dispute.

“This is great news for writers,” said Michael Pietsch, Hachette’s chief executive. “The new agreement will benefit Hachette authors for years to come. It gives Hachette enormous marketing capability with one of our most important bookselling partners.”

An Amazon executive, David Naggar, said Amazon was “pleased with this new agreement as it includes specific financial incentives for Hachette to deliver lower prices, which we believe will be a great win for readers and authors alike.”

. . . .

While Amazon and Hachette successfully kept the exact terms of the dispute to themselves, Amazon was widely seen as wanting a bigger share of e-book revenue. Since Amazon also wanted lower e-book prices, that was seen by Hachette supporters as a move that threatened to undermine the publisher’s existence.

Link to the rest at The New York Times and thanks to SFR for the tip.

Here’s the text of the joint Amazon/Hachette Announcement:

HACHETTE BOOK GROUP AND AMAZON REACH NEW EBOOK AND PRINT BOOK AGREEMENT

November 13, 2014 – Hachette Book Group and Amazon (AMZN) today announced that the companies have reached a new, multi-year agreement for ebook and print sales in the US.

Michael Pietsch, Hachette Book Group CEO said, “This is great news for writers. The new agreement will benefit Hachette authors for years to come. It gives Hachette enormous marketing capability with one of our most important bookselling partners.”

“We are pleased with this new agreement as it includes specific financial incentives for Hachette to deliver lower prices, which we believe will be a great win for readers and authors alike,” said David Naggar, Vice President, Kindle.

The new ebook terms will take effect early in 2015. Hachette will have responsibility for setting consumer prices of its ebooks, and will also benefit from better terms when it delivers lower prices for readers. Amazon and Hachette will immediately resume normal trading, and Hachette books will be prominently featured in promotions.

 

Amazon Resumes Limited Hachette Pre-Orders and Restores Some Discounts

13 November 2014

From Publishers Lunch:

For the first time since late May, Amazon customers can pre-order at least some titles from Hachette Book Group — principally Little, Brown books, set for imminent release (such as Kevin Pietersen’s AUTOBIOGRAPHY, publishing December 1) as well as books not scheduled until spring 2015 (including Cathy by John Carder Bush in April, and books by Susanna Gregory in February and March). From our searches Wednesday morning the restored pre-orders apply only to Little, Brown and have not been extended to Grand Central, FaithWords, Orbit or other HBG divisions.

. . . .

At the same time, Amazon has resumed broader discounting of at least some HBG new release hardcovers

Link to the rest at Publishers Lunch (behind a paywall) and thanks to Chris for the tip.

Wylie the jackal becomes Hachette’s running dog?

31 October 2014

From TeleRead:

Never one to bear a grudge or indulge in overly aggressive, unreflective self-promotion, Andrew Wylie can’t seem to forgive Amazon for the failure of his Odyssey JV with them – or in general, for failing to acknowledge that nothing moves until Andrew Wylie says so. And now he’s blaming Amazon for depriving writers of a decent living. “Writers will begin to make enough money to live,” he claims, according to his keynote address at Toronto’s International Festival of Authors, if only the Big Five have the cojones like Hachette to stand up to Amazon, who he doesn’t hesitate to compare to ISIS.

. . . .

And remember that back in 2010, Wylie was garnering support from authors for his Amazon tie-up because they claimed traditional publishers had been paying too little in royalty rates for ebooks. And now things have turned round and the Big Five are the heroes again? Forgetful creatures, jackals.

It’s no surprise that Wylie also chose to unload on self-publishing, which he described as “the aesthetic equivalent of telling everyone who sings in the shower they deserve to be in La Scala.” After all, if authors can publish themselves, who will ever want to go through Andrew Wylie. Or even listen to him?

Link to the rest at TeleRead

Amazon’s Dispute With Hachette Might Finally Be Hurting Its Sales

27 October 2014

From Time:

The book business launched Amazon to success, and now it’s hurting the online retailer’s growth.

Amazon announced its worst quarterly loss in 14 years Thursday, losing $437 million in three months. One of its worst-performing segments? Amazon’s old core business: North American book, movie and music sales. The segment’s sales increased a mere 4.8% from 2013, the slowest growth for the category in more than five years. That compares with a 17.8% growth in that segment a year ago.

Amazon chalked up the slow media segment growth to fewer students buying textbooks, but that doesn’t seem to be the whole story. In fact, the company’s woes may in part be related to its damaging publicity spat with the publisher Hachette.

. . . .

There isn’t much visibility into what’s going behind closed doors and in sealed accounting documents at Amazon, but by targeting Hachette, Amazon is making it harder to buy the retailer’s own books. A customer deterred by an artificially long shipping time on a Hachette book is a sale lost. For a huge company like Amazon, that may be little more than a self-inflicted scratch, but it’s likely making difference.

And more importantly for the online retailer over the long term, the dispute may be hurting Amazon’s image and turning customers away. For book readers who love particular authors, it’s hard to forget when a bookstore is accused of having “directly targeted” a favorite writer. A literary-inclined crowd, already more likely to side with the letters people than the money people, may see the Hachette dispute as a turning point. “It’s logical that readers identify more with authors than with Amazon,” says Colin Gillis of BGC Financial. “Amazon is a service. You may like the service but you build a relationship with authors.”

Link to the rest at Time and thanks to James for the tip.

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