Amazon Contract Dispute with Publishers Intensifies as Book Industry Reacts
For weeks, my news feed has been filled with negative reports about Amazon. The volume of reports has reached a level that even surprised me. The rest of the book industry is not exactly gentle in its assessment of Amazon’s business practices. However, since the dispute over terms with Hachette and Bonnier, the situation has taken on a new dimension, and the negative reports have exploded, especially in the book industry and publishing blogs that I follow.
The fact that Amazon, as a company from outside the industry, is facing hostility due to its unparalleled growth in recent years both in online book sales and the eBook market probably surprises very few. After all, it concerns the existence of many small booksellers, publishers, and, of course, larger competitors in the form of chain stores. Yet, it seems people are conveniently forgetting that these chain stores also didn’t exactly wear kid gloves to advance their unruly expansion of branch networks in the past.
So far, I have refrained from commenting on the terms dispute since, in my view, aside from the public back-and-forth between Amazon and Hachette, there hasn’t really been anything noteworthy to report, and at least outwardly, there has been a stalemate for weeks regarding the outcome of the dispute.
Heated Atmosphere
A few days ago, however, in the context of an article about the Kindle Unlimited eBook flat rate, I let myself make a brief comment in a side note (“The book industry would be well advised not to continuously focus on skirmishes with Amazon […], but rather to work on further developing their own offerings.”) and promptly received criticism from an ALLESebook.de visitor. In the criticism, not only was I accused of ignorance, but also of partiality due to the ongoing affiliate program.
I can dismiss both accusations with a clear conscience, even though, of course, I am not privy to all the details of the dispute between the parties mentioned (but this probably doesn’t concern only me). However, what seems to have been completely overlooked in the criticism of my comment was the fact that I wasn’t criticizing the publishers’ fight for self-determination and against Amazon’s increasingly dominant market position (in fact, I didn’t mention publishers at all), but rather I reproached the book industry in general for their inactivity in providing a genuine alternative to Amazon, while they fight the US retailer elsewhere with maximum commitment.
The current terms dispute is just a symptom of a development that has been looming for a long time. This is painfully aware to all market participants. One could soon become a target oneself (or maybe has already been pressured into accepting better terms for Amazon), which is why the current outcry is so large. Once the current dispute is settled, some peace will likely ensue, but the question remains: for how long? In the long term, the situation will likely not improve until customers are offered a similarly convenient alternative. And this is precisely the crux of the matter.
In the fight for customer favor, the terms dispute with Amazon, in my opinion, is not important since most outsiders to the industry are not really affected by it. For instance, today, the Börsenblatt headlines “Terms dispute with Hachette has an impact: Some US consumers are buying fewer books on Amazon.com,” but the truly noteworthy news, in my view, is not the potential (!) decline in revenue for the shipping giant but the fact that a much larger portion of customers simply doesn’t care despite weeks of negative headlines.
Low Customer Concern
The Codex Group surveyed 5,300 book consumers in the US about the matter, with a majority of 60 percent indicating they didn’t know about the conflict. 39 percent had heard about it, of whom 39 percent had no opinion on the matter. 37.5 percent reported that they hadn’t changed their purchasing habits, 4.4 percent now buy even more from Amazon, and 19 percent say they are ordering less from the shipping giant. Initially, this sounds like a lot, but these figures understandably refer exclusively to the aforementioned 39 percent. In other words: not quite 8 percent of respondents are buying less from Amazon due to the terms dispute – they say. But how much less they are buying remains unclear.
From last year, we already know that the results of such surveys and actual purchasing behavior can vary significantly. After the temporary labor scandal, Amazon’s popularity plummeted massively, and in a survey, 19 percent of people said they wanted to change their purchasing behavior due to the reporting. Moreover, in the months that followed, increasing demands for better (tariff-compliant) wages for employees became vocal.
No Harm to Amazon
One would assume a huge blow to the German branch of the shipping giant. However, reality looks different: in fact, there were no long-term negative effects because in 2013, Amazon.de was still able to grow significantly and increase its revenue to 10.54 billion USD, up 21 percent. For comparison: In 2012, Amazon.de achieved around 8.73 billion USD (+21 percent).
The negative headlines apparently only slow down the shipping giant temporarily, in the long run, shopping behavior hasn’t changed much at all. Also, one must remember that the temporary labor scandal certainly reached a larger audience in the mass media than the current terms dispute. Moreover, for most average consumers, companies like Hachette and Bonnier are intangible, so sympathy points may not be as clear as in 2013.
Now one must naturally ask why this is so. Other companies would have long since buckled under constant negative press because customers would have migrated en masse to competitors. Why not here? The answer is as simple as it is obvious: There is no competitor that functions as comfortably across all possible product categories as Amazon. This fact must be faced, and corresponding measures taken, so that customers who are disillusioned with Amazon find a new home elsewhere. However, I fear this won’t work for as long as people in responsible positions boast about never having bought a book online. How exactly do you aim to put together a sensible counteroffer if you essentially have no idea what the market holds? Constantly complaining about the disliked competitor without offering customers an equally good alternative ultimately proves to be, at least with regards to coveted customer acquisition, completely pointless.
At least in the eBook market, the Tolino Alliance has managed to achieve some important successes, rising to become the second strongest market player in 2013 (although still at quite a distance). Amazon hasn’t overlooked this either, so the shipping giant recently reduced the Kindle Paperwhite to 109 euros, putting the Tolino partners under real pressure for the first time since launch. Now the hope is that the Tolino Alliance has enough stamina to continue the marathon.
In the meantime, another competitor, Genialokal, is forming, aiming to strengthen the local (book) trade in particular and wanting to become a serious competitor to Amazon in the long run. It remains to be seen whether this effort will succeed.
At this point, it really only remains to reiterate that putting the brakes on Amazon is only possible through suitably good competing offers. One can, of course, discuss extensively the effects of a (quasi) monopoly of the shipping giant and complain endlessly. But this doesn’t change the situation one bit, which is why the recommendation remains: Work on improving your own offer rather than constantly going up against the competitor apart from your actual business activities. How about if the publishers and Amazon competitors worked together, for once, to advocate for widespread DRM-free nature in the ePub market?
Before anyone wants to scold me again: No, this post is not Pro-Amazon-Anti-Publisher. I stand neutral towards both parties and only use offers as long as they best meet my personal needs. I have no fundamental preference for a specific provider.
This is why Hachette won’t give in to the terms dispute
Update August 8, 2014: A little over a week ago, Amazon published a statement on the Hachette terms dispute in its own forum. The shipping giant made its point as clearly as never before, which quickly spread in the mass media. “Amazon wants cheaper eBooks” was the headline of most articles on the subject, and indeed what Amazon had to say sounded entirely plausible, if not for a few things that remained unsaid.
But let’s take it step by step: Amazon makes it clear right from the first sentence what it’s all about. “A key objective is lower e-book prices,” it says there. Following this, the eBook specialist criticizes the current pricing, noting how digital books often cost 14.99 USD in the US and sometimes even more. Since eBooks do not incur printing costs, don’t risk overprinting, don’t require forecasts, have no returns (B2B), have no lost sales due to missing stocks, incur no storage or transportation costs, and have no secondary market, they naturally have to be cheaper than their paper counterparts.
Cheap eBooks are good for everyone! Or so
As an end customer, one can mostly agree with these explanations because according to various surveys, the majority of customers expect cheaper eBooks. One might counter that with lower eBook prices, sales will also be lower, and the price reduction will thus leave publishers and authors with lower profits.
However, according to Amazon, this is not the case because cheaper eBooks sell better. So far, no surprise. The shipping giant also provides concrete figures: For every eBook sold at 14.99 USD, an average of 1.74 eBooks would be sold at a price of 9.99 USD. Instead of selling just 100,000 eBooks at 14.99 USD, one would sell 174,000 digital books at 9.99 USD. The revenue in such a case would be 1,738,000 USD, 16 percent higher than the 1,499,000 USD from the more expensive eBooks.
So with a cheaper pricing strategy, everyone wins, right? The customer pays 33 percent less, authors earn more, and reach an audience 74 percent greater. Amazon doesn’t want a larger piece of the pie: the 30 percent share is enough for the company. That’s the same percentage it got when publishers illegally colluded with Apple, it says. There is no mention here of a larger share of 40 or even 50 percent, as some Hachette leaks suggested. So it doesn’t sound so bad – except for a few caveats that go completely unaddressed here.
The Fear of the Unknown and Amazon’s Market Power
While eBooks make up a large share of the total book market in the USA, they are by no means responsible for the majority of sales. It’s thus not a given that authors and publishers will earn more with lower eBook prices because just as easily sales of printed books could decline due to this measure. Not immediately, but over a longer period, this is certainly conceivable, bringing us to the next problem.
Publishers have been viewing the eBook development with concern from the beginning because customers (understandably) demand lower prices. The danger of entering a downward spiral must not be underestimated, nor can the shifting price awareness of consumers. The latter is particularly a factor that is difficult to assess. At some point, customers might no longer be willing to dig deeper into their pockets, which could negatively affect regular book sales and thereby the total sales.
We can currently observe this effect in the eBook reader market. Last Christmas, a price war between Amazon and the Tolino Alliance began, which recently culminated in the permanent price reduction of the Kindle Paperwhite. The result: Many customers, due to the constant price actions, are now no longer willing to pay a larger amount of money for an eBook reader. But of course, it is not only the price actions of the book industry that influence price awareness, but also the ever-falling tablet prices.
Lastly, Amazon’s market position should be mentioned. The shipping giant is already the heavyweight in the eBook market in the USA, and further strengthening of this position is certainly not desirable for publishers. If the publishers’ set eBook prices are lower, Amazon can naturally conduct various price actions (or overall discounts) with steady losses over a longer period and continue to weaken the competition.
Bottom line for the publishing industry in the USA, there might be a lot at stake. At the current time, it is quite challenging to estimate where everything would really go if Hachette gives in during the terms dispute, but in any case, many unknown factors come into play here that make future planning difficult. Therefore, the equation is by no means as easy as Amazon portrays it in the statement. Sure, short-term and only related to eBooks, authors, publishers, and customers win, but in the long run, this could look quite different.
Is Movement Coming into the Terms Dispute with Amazon?
Update September 23, 2014: For many weeks, the terms dispute has been raging between Amazon and various publishing houses. If the previously leaked and also official statements are to be believed, Amazon wants to enforce lower eBook prices, on the one hand, and to take a 50 percent share of eBook revenue, on the other.
The statements about the first point come from Amazon itself. In its forum, the company recently made some remarks on why low eBook prices would be beneficial for the entire distribution chain from the author to the publisher, Amazon, and ultimately to the customer. From the 50 percent revenue share that Amazon allegedly wants (the information had already leaked beforehand), there was no mention in the statement. Instead, Amazon wants a 30 percent revenue share.
Who Wants What?
A somewhat surprising report from the Börsenblatt, which refers to Spiegel, notes that movement seems to be coming into the conditions dispute with German publishers. Surprising because, according to Spiegel’s information, some publishers have confirmed that Amazon is now no longer insisting on a 50 percent share but would be satisfied with less than 40 percent. But Amazon already said this in the above-linked statement, right? But maybe that was only about the dispute with Hachette. Who knows.
Additionally, future contracts should no longer be limited to one year but could be valid for up to four years. Allegedly, an agreement could be reached before the Frankfurt Book Fair. So far, the much-discussed delivery situation of Bonnier books has not changed. These are still only available with delays.
In any case, one can now be curious to see if the weeks-long dispute will soon come to an end and if all information about the matters will be laid on the table afterward (but that is probably not to be expected). At least the claims about Amazon’s sought revenue share of up to 50 percent have remained inconsistent throughout the terms dispute.
Harry Potter Available Again: Amazon Reaches Agreement with Bonnier
Update October 25, 2014: The terms dispute with Amazon and several publishers has kept the book industry on edge for many months and has once again sparked a lively discussion about the US shipping giant’s market power. In the USA, the matter escalated so far that the dispute between the two main players, Hachette and Amazon, even moved to full-page ads in the New York Times. For a long time, it wasn’t even clear what exactly the reason for the dispute was, as official statements explicitly naming the trigger were scarce.
At least until Amazon published a post in its forum, demanding lower eBook prices. The digital versions of books should be cheaper because many of the costs associated with distributing a normal book are eliminated. Around 10 USD is the upper limit that Amazon wants to enforce, with the price reduction even serving to the advantage of all parties involved. For its calculations, Amazon used its own Kindle program, which can also be seen as a first, as the company usually doesn’t provide insight into key business areas.
Amazon Under Pressure Due to Negative Business Figures?
In Germany as well, there was a dispute, although the public confrontation between the disputing parties wasn’t quite as drastic as in the USA. One of the publishers Amazon clashed with was Bonnier. After things started moving even before the Frankfurt Book Fair and Bastei Lübbe reached an agreement with Amazon, Bonnier followed just a few days ago. In a statement from the company, it reads: “This agreement equitably accommodates all three parties’ demands and expectations—those of Amazon and the publishers as well as the authors’ interests.”
Essentially, the statement is non-informative and reveals no details of the agreement made. What the price reduction by Amazon is, what other terms have been negotiated, remain hidden. As a direct consequence, all Bonnier titles (or the affiliated publishers) are now available again, including the popular Harry Potter series, which had long been only available with delays on Amazon.
The timing of the peace settlement is undoubtedly no coincidence, as both Amazon and the publishers probably have no interest in sabotaging their sales before the Christmas season. Particularly the shipping giant is under pressure due to the recently announced record loss of 437 million USD in the last quarter. The costly Fire Phone, which soon turned out to be a flop, significantly limits the financial leeway that Amazon always had, now enormously.
