updated 03:45 pm EDT, Sat August 9, 2014
Ongoing struggle between Amazon and content publishers highlight changes
In advance of a coalition of authors' letter being published in The New York Times tomorrow supporting publisher Hachette, Amazon has lashed out in an open letter to consumers, asking readers themselves to take Amazon's side in the "fight" for e-book pricing. The problem is that the matter is not as simple as either Hachette or Amazon are portraying it, and the real victims in this dispute are the customers, caught in the middle.
Drawing parallels to the advent of the paperback book after World War II, Amazon believes that the issue is as simple as the commerce giant wanting lower book prices, where publisher Hachette does not, calling pricing for e-books at $20 "unjustifiably high" given the lower costs of e-book creation and distribution. A random perusal of 100 titles from Amazon's store, however, finds only two new release mass-market e-books at $20, with most from the major publishing house between $10 and $12 - around $20-30 less than the average retail cost of a hardcover tome. The average of our search came in at $11.11, far less than Amazon's $20 price claimed in the letter.
Amazon writes that "books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive." This is a fair point, but simply lowering prices may not create the larger "pie" Amazon believes - and could have disastrous effects on physical bookstores, the diversity of publishers, the range of books published, and of course the ability of authors to earn a living, the latter of which has already plummeted even as e-books have risen.
Oddly related to its own point, the Amazon-driven "Readers United" letter campaign (rather ironically) misquotes and misinterprets author George Orwell as well, implying that the author was against inexpensive books -- in fact, he was not. Orwell's quote is pro-consumer, saying that he was in favor of inexpensive books, but noting that consumers would likely spend their money elsewhere after buying the same amount of books.
Also in the letter are claims that Amazon would see 74 percent more sales of an e-book if it was reduced to $10, from $15. The corresponding change would be that "the customer is paying 33 percent less, and the author is getting a royalty check 16 percent larger" according to Amazon. The math may or may not be accurate, but it points whats at the stake in the issue -- the control of book pricing. Hachette (and other publishers) want to control the price of what they sell. Amazon wants the same rights, and incidentally to take much of what would have been the publisher's share of that check.
Neither Amazon nor Hachette is blameless in the affair, and each wants the consumer to believe that the opposition is the enemy of free trade, not consumer-friendly, and opposed to fair product valuation. In truth, the debate between the companies is more about the business models of each, rather than actual interest in customer wants.
Amazon points out Hachette's involvement in the controversial e-book price fixing trial with Apple and other publishers, and glosses over the major points raised by the trial, while still using strong-arm tactics to get what it wants from publishers. Hachette believes that it, and only publishers like it, should get to set pricing on e-books -- and is afraid that pricing them too low both endangers the ability of publishers to stay in business, and devalues the work that authors do.
Authors are understandably nervous about the same; Walmart used these exact same tactics to drive many former US suppliers of goods out of business or offshore with its demand for unsustainable commodity pricing, which has resulted in low prices but also lowered wages, dried-up jobs and reduced the buying power of consumers. Hachette is fighting to sustain the status quo of gently-trending-lower e-book prices; Amazon appears hell-bent to destroy the old guard and replace it with - well, largely itself, and doesn't appear to have thought the full ramifications of that notion through.
One day, Amazon will be taken to task for their tactics with publishers -- what they are doing to Hachette, ostensibly in the interest of consumers, will likely land them before a judge at some point. Likewise, one day Hachette will complete its transition from mostly print to mostly e-books, and finally see savings in its business that it may pass on to buyers. The music and movie industries are still working this one out as well, having to deal with both the "traditional" retail model as well as the new "download/streaming" paradigm and still figure out how to make decent profits. The foot-dragging with all three industries may be more out of stubbornness and resistance to change than anything else.
One thing has become clear: the situation has come to a head largely because of Amazon's business model. It chose to trade away profits early on in order to gain marketshare, but has now run into a wall of shareholders who are increasingly impatient for the business to become truly viable. Amazon doesn't want to raise prices for consumers until there is no viable competition, and thus has to put the squeeze on its suppliers, to in effect take their profits. It is increasingly picking fights with publishers of all types, with Disney being the latest mark in Amazon's extortionate scheme.
We've seen this movie before: it's a replay of what Walmart (and the rise of similar big-box stores) did to the US economy. Consumers benefit in some ways (lower prices), but there are numerous highly-detrimental effects ranging from the loss of a diversity of suppliers to the loss of US jobs, thus creating an economy that is in effect dependent on slave-like labor and, in turn, depressing the standard of living and consumer buying power.
We've also seen what happens when industries don't adapt to changing market realities, or maintain high prices in an economy where very few people are making real money. In our view, the publishing industry are not guilty of the kind of mindless "profit über alles" greed that one sees in some other areas, but they may be fairly accused of having become too reliant on a single reseller - Amazon - thus essentially giving it the power to bully them by not fostering more diversity of e-book outlets, and by ever having agreed to the "wholesale" model of pricing (which allows the retailer to set pricing, even unsustainable loss-leaders) in the first place.
It doesn't help that the US Department of Justice appears to have decided that lower prices are the be-all and end-all in terms of consumer rights. Its meddling in the e-book market (exclusively -- and suspiciously -- on Amazon's behalf) has complicated the matter considerably, and in our view done a lot of damage to the industry in the long-term in search of short-term populist short-sightedness. Consumers love lower prices, of course, but often don't care for the inevitable results of too-low pricing (conglomerate consolidation, monopoly abuses, reduced diversity of offerings, poor service, et cetera).
Ironically, e-book prices were already falling during the period where Amazon was forced to accept wholesale pricing, and it was making a profit (for the first time) on those "more expensive" e-books. But now, it appears, it has visions of replacing the publishers, and taking those profits as a preferred alternative to simply letting the "free market" decide what e-books are worth.
Until the day that this pricing dispute (and the next, and the next) is worked out, the corporations don't suffer much, despite their lamentations. In this battle of giants, it is consumers who suffer the most collateral damage. Authors, particularly those who are not routinely on the best-seller lists, do as well. How many more industries need to be disrupted by new technology before the lesson is learned? In our view, the biggest issue is that both sides are abusing the most important factor -- the buyers -- by taking them for granted, and abusing them as pawns rather than genuinely looking out for their interests over the longer term.