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Opinion: Hachette and Amazon fight, who loses?

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 ├╝ber 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.



By Electronista Staff
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Comments

  1. prl99

    Dedicated MacNNer

    Joined: 03-24-09

    Wrong. The customers aren't the victims, the content creators are (authors, musicians, etc.). People understand nothing is free, and if it is "sold" that way, they should understand either they're getting garbage, someone is financing the low cost, or the seller is stiffing the creator. Amazon keeps trying to say they are helping the customer but intelligent customers know there is value in everything they buy. When something is sold for too little money, they know something is going on. Amazon is stiffing the creators while telling the content creators what the worth of their products are. The DOJ has their collective heads up you know where because they are so out of touch with reality it's ridiculous. I doubt Amazon contributes to the gross national product but content creators do and they are receiving less money for their goods while consumers are actually paying more money for lots of items Amazon doesn't sell. Where is the DOJ controlling those items? They're not because they are getting paid to look the other way, just like they are with Amazon. Bezos is a Democrat heavyweight, which means Obama isn't going to commit political suicide. Even though I'm a Democrat, I don't believe in what Amazon is doing or what the DOJ is doing. Let's get back to putting the actual bad guys in jail and stopping blatant monopolies.

  1. Mike Wuerthele

    Managing Editor

    Joined: 07-19-12

    After saying "wrong" you reiterated 90% of the content of the editorial :D

    And to be fair, we do say content creators suffer too -- last paragraph.

  1. Inkling

    Mac Enthusiast

    Joined: 07-25-06

    Amazon doesn't want lower prices. If it did, it would change how it pays book royalties. Suppose, for instance, an author is considering lowering the price of his novel from $2.99 to $1.99. Since Apple plays a flat 70% royalty at all prices, lowering the price by 33% will lower his income by 30% ($2.10 to $1.40). That might be more than made up by added sales. But with Amazon the numbers of VERY different. Lowering his price below $2.99 cuts his royalties from 70% to 35%. Instead of making $2.10 with each sale (less a download fee), he'll make $0.70. Cutting his price by 33% will reduce his per-sale income by 300%. There's no way that small a price cut will triple his sales. That illustrates almost perfectly that Amazon isn't interested in lower prices. It's interested in maximizing its profits at the expense of authors and publisher.

  1. cvbcvb

    Fresh-Faced Recruit

    Joined: 11-03-03

    The editorial could have explored how the music business and iTunes have developed. Perhaps there's a parallel to be drawn with how the book business model will shape up...

  1. Charles Martin

    MacNN Editor

    Joined: 08-04-01

    That's a good point, cvbcvb, and believe me this article could have easily been even longer! :)

    Apple's original premise with iTunes was similar to Amazon (run the business at break-even), but where it differs was that Apple put pressure on content providers to have a uniform price *not* to help Apple, but to help *consumers.* The price wasn't "unsustainably low" or a "loss leader," it was a fair price that resonated with buyers and turned on the "impulse buy" mental trigger. Amazon may genuinely feel that $9.99 is the same sort of thing for e-books, but despite its cachet with consumers the authors and publishers (and Steve Jobs) have said that it isn't sustainable -- the only reason we ever had e-books at $9.99 was because Amazon sold them that way at a loss to build up marketshare.

    The model Apple used for the iTunes store -- a guideline price with consent from the industry -- was extremely successful for literally *everyone* -- record companies, artists, Apple, and buyers. The move, insisted on by greedy record companies, to push newer material up to $1.29 has not gone down well with buyers even years later, and really (in my personal opinion) hurt the store's momentum somewhat. Luckily, Apple's been able to keep the 99 cent line on most items, and even won that concession to allow some older material go below that price, which has offset the sting of the $1.29 thing a bit.

    Amazon, again in my view, is just trying to gain profit on the backs of publishers who just aren't making enough to share revenue. Amazon is figuratively trying to argue that we don't need publishers, which they see as middlemen. As someone with a long background in publishing, I disagree vehemently with this view. Nobody in the book publishing business is a billionaire -- the margins and profits are already quite thin for (non-megamedia conglomerate) publishers. Amazon is just trying to literally squeeze traditional publishers out and take over that job themselves -- and get their profit that way before raising prices. If that happened, it would frankly be disastrous for everyone except Amazon.

  1. cvbcvb

    Fresh-Faced Recruit

    Joined: 11-03-03

    Yes, thank you for the update.

  1. James Katt

    Junior Member

    Joined: 03-02-08

    The authors lose. If Amazon wins, authors get less income. If Amazon continues to use monopoly tactics against Hachette and other publishers, authors already are losing income. Many have lost 60% of their income by Amazon's tactics.

  1. aardman

    Fresh-Faced Recruit

    Joined: 11-18-09

    It's pretty obvious to everyone, and the article states it too, that Amazon is offering lower prices to establish a monopoly and thus established, start raising prices to monopoly levels, i.e. gouge the heck out of the consumers. And the suppliers too, by the way.

    Well, pretty obvious to everyone but the numbskulls at the DoJ who are responsible for the breathtaking feat of being the first antitrust agency in the history of economic governance to sue for the restoration of a monopoly after a new entrant had successfully demolished it.

  1. rdguthrie

    Fresh-Faced Recruit

    Joined: 08-11-14

    Not a bad summary of the situation but I really think you've emphasized readers as the 'real' victims here when it's more about the authors.

    This situation is a minor irritation to me, "Oh NO! I have to log on to a DIFFERENT WEBSITE TO BUY THIS BOOK (or I'll just read one of the other 50 books on my to-read list)! WHATEVER SHALL I DO!?" whereas the impact on an author is to have their overall sales decline for their book; they will literally see their income decline as a result of this dispute.

    The REAL victims are the authors. Readers are barely inconvenienced if they really want to preorder a Hachette-published book.

  1. shawnde

    Fresh-Faced Recruit

    Joined: 04-01-08

    I have ZERO empathy for publishers; whether Hachette or anyone else. I have a lot of respect and empathy for content creators, and they're the ones getting screwed here more than anyone else.

    I'd be happy to see Hachette and all the other publishers who were part of the Amazon/DOJ lawsuit go out of business, because they fully deserve it. They're supposed to be acting on behalf of their clients (authors and content creators), and all they did, was roll over and accept a plea bargain, so that they could get back into bed with Amazon, and they left Apple hang to dry in that lawsuit, in some way implicating that it was Apple who twisted their arm, when in fact, it was anything but.

    At least, if they go out of business, maybe someone else with brass balls will step up to the plate who will actually FIGHT for author's rights and royalties, and won't sell themselves out like cheap whores.

    Amazon is a corrupt corporation, who's probably much worse than Walmart when it comes to ethics. You can be certain that after they destroy the publishers and they become the middleman, THEY WILL raise prices significantly, and screw the consumer over as well. We've seen that before with many corporations (Home Depot was one).

    What we need in the industry is an audit of the lobbying system to avoid such ludicrous lawsuits as the Amazon/DOJ witch-hunt, which were basically anti-consumer in their final result, and we also need publishers who will stand up for their rights and for the right of their clients (authors, publishers).

  1. Deezy

    Fresh-Faced Recruit

    Joined: 09-22-12

    Late last week, I received an email from Amazon (you've probably seen reports of this floating around the Net). It was written to authors and said, basically, "waaa... waaa... We're looking out for YOU! waaa... waaaa.... waaaa... -- signed Amazon.com.

    Amazon, you can go cry somewhere else. You already do everything you can to slow down our revenue stream, and now you want us to stand up for you in this ongoing battle? Go away! I wish Hachette or someone would come up with their own eBook store and be done with you... (B&N, wake up!)

  1. Charles Martin

    MacNN Editor

    Joined: 08-04-01

    aardman: I think Apple's "mistake" (air quotes there) was in not waiting until Amazon was a completely out-of-control monopoly before (the publishers, etc and Apple) acted to break up the monopoly scheme. They stole the DOJ's thunder (though I'm not at all convinced the DOJ would have ever acted), so to speak, and that's why they were prosecuted. Where the DOJ is now, in this situation, is confounding.

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