As a fight over ebook pricing intensifies between French book publisher Hachette and online retailer Amazon (AMZN), some are suggesting that Amazon customers are being left behind.
While details of the ongoing standoff are sketchy, it has become clear that Amazon is pressuring Hachette by making access to its books difficult on amazon.com. As an author whose recent book was published by Hachette, Fortune’s Adam Lashinsky penned an article earlier this week that takes issue with Amazon’s behavior as contrary to the company’s ostensible obsession with customer service.
I would argue that he is confusing “anti-consumer” with “fierce competitor” in characterizing Amazon’s behavior.
By way of background, this dispute dates back to November, 2007, when Amazon CEO Jeff Bezos launched the original Kindle, surprising publishers with plans to price new ebook releases and best sellers at $9.99, well below the wholesale price publishers charged Amazon. At the time, publishers charged Amazon and other retailers the same wholesale price for e-books as for hardcovers, typically around $13. With its aggressive, loss-leader pricing, wide selection and heavy marketing, ebook sales skyrocketed and Amazon’s market share reached nearly 90%, alarming publishers.
In response, in January, 2010, Hachette and four other publishers announced an agreement with Apple (AAPL), whereby publishers would set retail prices for ebooks – typically 30% higher than Amazon’s prices at the time – giving retailers a fixed agency commission on each sale. The Department of Justice filed suit in April, 2012, claiming Apple and the five publishers were guilty of collusive price-fixing. Hachette was one of three publishers that chose to settle, providing Amazon and other retailers immediate discretion in ebook pricing and agreeing to renewed negotiations after a two-year “cooling off” period, which brings us to today’s riff between Amazon and Hatchette.
In his piece, Lashinsky says:
“But let’s get back to the customer. Assume for a moment that Hachette is the bad guy here, that the smallest of the major book publishers is making unreasonable demands on Amazon. (This seems unlikely, but bear with me.) Even if Hachette were behaving badly, I’m scratching my head trying to figure out in what strange universe Amazon believes that making it difficult for its customers to buy Hachette’s products is consistent with “customer obsession.” I’m trying to understand how Amazon thinks this will help it “earn and keep customer trust.”
I would argue that it’s a mistake to assume there are good guys or bad guys here. I don’t begrudge either side for fighting hard for their own interests. So let’s just look at the impact on consumers if either side gets their way.
Hachette might prevail because they have a 100% monopoly on all their titles, and are pushing Amazon very hard with the threat of not selling any of their books at lower wholesale prices. Essentially, Hacehtte’s position for now appears to be: “our way or nothing — if you want our books, here’s the price, period.” If Amazon backs down, they will have to maintain high retail prices to cover high wholesale prices. Keep in mind of course that the publishers set high wholesale prices for ebooks from day one and then illegally colluded with Apple and other publishers to keep ebook retail prices high in 2010. Lashinksy seem to ignore these facts in brandishing Amazon as the anti-consumer player in this dispute.
Now if Amazon prevails – despite having the relatively weak bargaining position of controlling only 33% of total book sales – Hachette (and then presumably other publishers) will be forced to lower wholesale prices, which Amazon will likely pass along to consumers. Consumers would be the obvious beneficiaries here, as they are across every product category on amazon.com.
Turning Lashinsky’s argument around, I’m trying to understand what strange universe he lives in to believe that consumers won’t come out ahead if Amazon wins this fight. Lashinsky may be conflating author interest with consumer interest, and I can understand his disappointment in being collateral damage in this fight. But as he notes, consumers have alternative choices to buy his book (as I already have). After the dust settles, if Amazon wins, he will wind up selling morebooks at lower retail prices and probably earn higher royalty payments.
I think Lashinsky should redirect some of his wrath on Hachette, who, like other major publishers, pays only a 25% royalty rate on e=book sales, compared to 50% from native e-publishers like Open Road Media or 50%-70% from Amazon (depending on ebook price).
Right now, publishers are squeezing authors and consumers pretty hard. But it’s just business. I don’t waste a lot of energy worrying whether publishers are anti-consumer. Having said that, I stick with my prediction that major publishers will not be able to win this fight. Amazon has consumers on their side. That’s the universe I live in.
After 40 years in management consulting and venture capital, I joined the faculty of Columbia Business School, teaching courses in business strategy and corporate entrepreneurship
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