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October 31, 2014

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Amazon Reveals Sticking Points with Hachette

Amazon Amazon Reveals Sticking Points with HachetteOn Amazon’s Kindle forum dated July 29, the online retail behemoth revealed details of the sticking points with the Hachette Book Group that are contributing to the two companies’ very public battle over profit share and ebook pricing. According to the Kindle forum post, Amazon is fighting for lower ebook prices and a 30 percent profit share.

In the argument for why lower ebook prices are better for everyone, overall, Amazon states that most ebooks prices are unreasonably priced at $14.99 and $19.99, and that the market price of $9.99 actually benefits not only the customer at the short-term, but—

“For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.”

In other words, Amazon is maintaining that lower ebook pricing means they will ultimately sell more books, which shakes out to more money for everyone—including the publisher and the author—in the end.

That is, if the publishing company, Hachette, chooses to give what Amazon claims is a fair and reasonable profit-share to the author. (However, in this proposed scenario, authors will receive more in royalties from sales.)

The online retailer went on to say in the forum post:

“Amazon also believes that 35% of revenues should go to authors, 35% to publishers, and 30% to Amazon.”

Historically, “royalties for ebooks are generally 25 percent at traditional publishing houses,” according to the Amazon Books Team, who referenced the fact that Hachette (along with other major publishers) was involved in an ebook price-fixing suit with Apple that was recently settled.

Following the July 29 post, books publisher and journalist Michael Cader posted on his site, Publisher’s Lunch, a subscription-based publishing industry news publication run by Cader, a response titled “Update re: Awkward Amazon Communications On Amazon/Hachette Business Interruption” where he addressed the selective channeling of Amazon’s anonymous posting in its Kindle Forum (under the “Amazon Books Team”) which emphasized the sticking points of lower ebook pricing and profit share as what is holding up the negotiations, but—he pointed out—did not acknowledge its other motivations.

“What are the other key objectives, Amazon?” read Cader’s post, “Why do your conversations with people in the trade talk about looking for your fare share of the ‘business efficiencies’ produced by a rising ebook market and your investments, while your public words are only about pricing objectives?”

Cader’s post went on to talk about how the data regarding lowering ebook pricing and its relation to higher sales was not backed up by sharing this data to the publishers and the publicly-shared data from the post lacked a variety of price points to compare, such as the sales of ebooks at $11.99 and $12.99. (The Kindle forum post offers data for ebooks $9.99 and $14.99.) The post also brings up the point that given that ebook sales is “only part of the revenue for a new release book,” lowering the cost of ebooks is only part of the total sales pie. Amazon, which corners the market on ebooks sales, has motivation to lower ebook prices for more sales, writes Cader, but what about the rest of the picture?

The response raises other points, such as how Amazon brought up that authors who wanted to get on the bestseller list should insist their publishers price their ebooks at $9.99—but didn’t address the fact that Amazon gives “40 percent to 50 percent of its [bsetseller] slots to books Kindle Unlimited free trial members have clicked to download.”

Hachette has yet to release a press statement and has remained mum during this battle, with some of its star authors, like Malcolm Gladwell and James Patterson, going to bat for the publisher. And in spite of reports of flagging ebook sales for some Hachette authors on Amazon, Forbes reported on July 25 that Amazon online sales jumped 23 percent compared to Q2 from 2013 (although its overall shares dropped 11 percent).

 

You May Also Want to Read on SLJ:

Authors John Green and James Patterson Stuck in Midst of Ongoing Battle of Amazon vs. Hachette

Carolyn Sun About Carolyn Sun

Carolyn Sun (csun@mediasourceinc.com) is a news editor at School Library Journal. Find her on Twitter @CarolynSSun.

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