Amazon Gives In

Every few years, giant we’re-selling-parts-of-the-moon-next conglomerate Amazon decides whether it’s going to keep selling books (a mere 7% of its revenues,) and when it decides, so far, that it’s going to do so, it negotiates sales terms contracts with the Big 5 global conglomerates that dominate U.S. publishing, among other presses. (It doesn’t have to negotiate anything with the self-published authors since they agreed to a contract that states that Amazon can change their terms, including the monetary ones, whenever it wants.)

The sales terms do not include just what prices publishers will sell print books to Amazon for or price e-books with Amazon at, but also how much Amazon gets of each sale as its retailer cut, and how much additional monies Amazon gets of each sale in “developmental marketing” fees. Those are the fees that Amazon charges for search rhythm algorithims, search inside this book features, special screen displays, recommendations, etc., that all help books sell on Amazon and make it easy for people to find them. Amazon has been increasing the number of fees it demands the publishers pay to sell with Amazon in the contracts, squeezing the publishers for more revenue to feed its enormous business acquisitions engine. (Amazon gives most of these services away for free to self-pub authors, but it has been adjusting its cut and charging some fees to them.)

This has been particularly hard on small presses, for whom the balance between the costs of doing business with Amazon and making it up in cheap bulk sales they depend on from Amazon is very precarious. But it’s of concern for the big publishers as well, especially because some of the conglomerates also sell other merchandise to/through Amazon and because other retailers and wholesalers are likely to follow Amazon’s lead in charges. So when French-based global conglomerate Hachette entered into negotiations with Amazon this year, it balked at Amazon wanting a higher cut of revenues for marketing fees for e-books and print, as well as tighter control of the e-book market and better terms on print returns refunds (meaning more expenses and shipping costs for Hachette.)

Amazon promptly tried one of its favorite negotiating tactics with any size of publisher — suspending sales on Hachette’s titles, which it claimed were suddenly out of stock at Amazon or didn’t have a buy button anymore altogether, or messing up prices, so that Hachette would cave quickly. But Hachette isn’t as dependent on Amazon sales as some of the other Big 5, and more to the point, they are facing the same need as Amazon to cut costs and squeeze more revenue, so they dug in. Amazon promptly started a media campaign, claiming the dispute was only about e-book prices, that it was trying to decrease the costs to the consumer by making more e-books at the legendary price point of $9.99. This of course ignores that most e-books, including from the Big 5, are priced well below $9.99 already.

Hachette offered a few terse statements that the negotiations were about way more than e-book price points, but otherwise ignored media knattering in favor of confidentiality over the negotiations. That media coverage, as it was back when Amazon tried this tactic on Macmillan a few years ago, was not exactly positive towards Amazon. It got worse when a bunch of authors, some Hachette authors affected by the ban, some just big bestsellers, took to the presses to complain about Amazon’s author punishment negotiation tactic in a business deal that the authors had no say in. Amazon made pie in the sky promises that they knew contractually they and Hachette couldn’t actually do, even if authors and Hachette had been willing, over e-book prices only. But that didn’t change the general view that Amazon was riding roughshod over the book publishing business, especially in the States, which was still reeling from various retail shrinkage in recent years. That e-book sales have flatlined, having reached perhaps their natural share of the market for now, and that online selling of print books has expanded to more vendors, didn’t help Amazon have more leverage.

Some other authors, mostly self-pub bestsellers, dug up the old e-books should be cheaper argument, with an enormous lack of awareness of the current state of the e-book market and how the price situation had already substantially changed. These authors made up a lot of math, largely ignoring the print market (70-75% of the market,) and ignoring the merchandising fees that give Amazon a bigger cut (since Amazon doesn’t usually charge them those fees,) and ignoring the near monopoly and price controls Amazon has over their own sales. But the media moves on, as the media does, and as the stalemate continued, coverage pretty much died off.

Recently, though, Amazon came to a much quicker and cleaner arrangement with Simon & Schuster, which S&S believes was partly due to the bad press from the disgruntled authors who formed Authors United. The terms of that deal are mostly unknowable, except that on e-books, S&S has agency pricing. Amazon gets some special marketing discount events (which presumably means that Amazon cuts their cut in return for making it up with marketing fees for some special titles,) but how much in marketing fees S&S agreed to isn’t known. If it was an increase, it was probably a much smaller one than Amazon was hoping for, because they didn’t want another Hachette situation.

That they managed a deal with S&S, indicated that Amazon might be coming to an end to negotiations with Hachette, especially as it needed to negotiate with Macmillan and Penguin Random House next. And sure enough, they announced that they’d reached an agreement with Hachette. Hachette also will continue to have agency pricing on e-books, and will also have some special price discount incentives (which may mean Amazon gives a break on marketing fees in return for lower prices on bestsellers.) But that’s all either side is going to say, so the exact terms of print book sales and the marketing fees situation aren’t known. It does seem likely, however, that Hachette got mostly what it wanted, which isn’t really a big problem for Amazon as they still have a nice sized hold on the overall book market. And Hachette authors will finally be released from their uncertain hostage situation.

Amazon certainly isn’t evil just because it’s trying to get maximum revenue from the merchandise it sells. But Amazon’s lack of real investment in the book business, relative to its impact, is making book publishing increasingly unstable online. And Amazon’s negotiating tactic of harming third party licensors (authors,) has slowed booksale growth unnecessarily. It will be interesting to see if Amazon quickly cuts deals with the other Big 5 along similar terms or further disputes crop up. A lot of experimental online sales operations are going on at the moment, including by the publishers themselves, and right now, the future landscape of bookselling may end up with some interesting topography.







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