Love Letters in an Abusive Relationship

 

The author's facial expression as his brain hurts
My brain hurts…

I suspect many other authors and publishers received a message from Amazon in their email this morning. The missive relates to Amazon’s ongoing battle with Hachette, considered one of the “big” book publishers.

Since finding themselves in a deadlock–which seems to stem from Amazon wanting to increase its cut from sales of Hachette books–the two companies have been very public in posting comments to each other. It has gotten quite messy, and since there isn’t enough transparency for us bystanders to make fully educated judgements it’s hard to say what is really going on. Or, what the outcome will be. The general consensus is, however, that the results of this struggle could shape the future of the publishing industry.

Further compounding issues is the fact that Amazon is reporting enormous losses. Their profitability plummeted despite increasing sales by 25% in the last year. This is a familiar pattern for the company, with poor performance in seven of the last nine quarters. It sounds like Amazon is heading into bad territory. Of course, they have investments in new products that could potentially pay off, and an overall worth of $147 billion to fall back on if things gets too rough.

How many authors or even publishers can make such a claim?

Instead of being a facetious question that is the actual crux of the entire issue. You see, Amazon is suggesting the dispute is over their retail pricing suggestions. More simply put: everyone follow their business model, one built on using products as loss leaders–hooks to lure consumers in for more profitable purchases–and outlasting besieged competitors. However, if the business model is not even working for Amazon with their vast resources to draw from, how can it work for the rest of us, and–worst of all–will it lead to Amazon’s failure?

Whether you are pro-Amazon or against, or indifferent, we are now at a place where things would not be good for all of us if they go under. I don’t want to see all those sales go away for the distributors and manufacturers, not to mention the independent sellers with listings on Amazon. All the shops and chains Amazon is accused of putting out of business will not magically come back if they disappear, and I shudder to think what will happen to the shipping industry. So, then, let’s take a look at making things work out. How do we engineer a good solution?

It does not start with hobbling content creators, considered in Amazon’s corporate plan one of their four pillars of success. They are trying to couch the discussion in terms of the price consumers pay for eBooks. That is generally a free market issue where people who charge too much will whither and die, or correct their course. None of this seems to have anything to do with Amazon wanting a steeper cut of the book sales, if Hachette’s claims are to be believed anyway.

Whatever the case, in the letter sent out today they criticize Hachette for hiding behind the authors and essentially disregard the authors as being a consideration in the amount of money being paid or received. Then, at the end of the letter they call on authors to take part and actively go against Hachette in an email campaign…making them a shield for Amazon. So, which is it? Should authors be in the middle of the debate or not?

Even more questionable is this: whether the debate is over the sales price, or the amount Amazon takes from the sales, either way boils down to authors receiving less money per sale. And: asking the authors to actively pursue this business model. If I ask you to remove your shoe so I can hit you with it…you will say no. Right? Or, at least tell me to go buy my own shoe to hit you with.

Listen, authors already make so little most of them have to rely on other sources of income, juggling a number of jobs and hats, and what little money they can make is often a matter of dispute with their publishers. You’re seriously going to appeal to authors’ sense of…what? Brand loyalty to Amazon to override their sense of self preservation?

Speaking of which, check the following from Publisher’s Lunch regarding Amazon vs. Hachette:

“In a recent survey of almost 5,300 buyers (completed July 19), Peter Hildick-Smith of the Codex Group reports finding high awareness of the dispute. Just over 39 percent of respondents indicated that they were aware of the standoff.
….
Among those book buyers aware of the dispute who have an opinion on that disagreement, 19 percent said they were buying fewer books from Amazon, while 4.4 percent said they were buying more books from the etailer.”

Brand loyalty aside, perhaps Amazon is counting on authors being so upset about failing to convince publishers to invest in their manuscripts that they will overlook the details of their argument. Rejection stings, after all, but then so do the details.

The letter Amazon sent out opens with a citation of technological changes in publishing, such as the innovation of the paperback in addition to hardcovers, changing price dynamics. Technology advances and changes have nothing to do with the current disagreement; the argument isn’t about killing Kindle or eBooks to preserve the sanctity of hard copies. That ship sailed and sank years ago.

If you know anything about what experts term “the race to the bottom” in digital content–which has impacted the music, film, video game, and pornography industries–you might grasp that maybe there is a struggle to maintain the perception that people should pay an amount that makes it possible to continue generating products.

Because I can’t say to my son, “Hey buddy! I sold 25% more, but we lost so much I can’t pay the mortgage.” If seven out of nine times I check my money and find myself losing money, what then? Sure, I do follow Amazon’s model somewhat by offering books for a dollar or as a free download from time to time in order to generate interest. BUT. I also have to cover time spent on accounting, the time I spend on writing and editing, and that invested by the authors who publish with me, so I can’t offer everything at minimal pricing.

The profit margin on hardcopy books is not great, but they do cost more to produce which in turn involves higher cost for the consumer. Maybe eBooks don’t get printed and warehoused, but there does exist an investment on all sides of the equation: eBook conversion services cost, as do book designers, design software with eBook conversion software, the logistics people on the retail end, and the aforementioned editors and authors developing books.

If that last bit really isn’t worth anything shouldn’t we tell all the tech companies and pharmaceuticals to stop hiding behind “research and development” as an excuse for high costs? Are we really going to expect authors to ignore the years of work that go into their books and tell publishers to slash prices?

Or, should we acknowledge that Amazon really, really needs content to make their investment in Kindle–and the Kindle Unlimited program launched last month–pay off? At what cost are they providing content to consumers, though, in order to sell all those Kindles…and offset Amazon Prime memberships…

As somebody who has Kindle books available I of course want it to succeed, especially in light of Nook’s failure.
Yes, Alibaba is growing in a strong way, but if Amazon wants to brace against them for the long haul they need to strengthen their overall business model, not sell everyone on business models that don’t work for them–or even Amazon itself. Hey, if we insist realtors slash prices then everyone could live in a mansion. Okay, that’s silly, but it is not silly to think Amazon will turn around and demand to renegotiate every deal they have with publishers if Hachette caves to their demands.

In the meantime, we have volleys of letters, blog posts, and emails from both Hachette and Amazon. Until now I have been thinking Amazon’s preemptive strikes in public–such as their bribe to authors by offering to create a fund for them–were effective at least. Hachette’s latest offensive will hit the pages of the New York Post tomorrow, and with signatures from 900 authors, including some of the biggest industry, it seems the tide has turned. Especially with Amazon’s vice president calling twice in the past two weeks in attempts to personally put an end to this…and failing.

What follows is the letter Amazon hopes will improve their luck, in its entirety. What is your opinion? Please let me know in the comments section. Thanks for reading!

* * *

Dear KDP Author,

Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents – it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year.

With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution – places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion.

Well… history doesn’t repeat itself, but it does rhyme.

Fast forward to today, and it’s the e-book’s turn to be opposed by the literary establishment. Amazon and Hachette – a big US publisher and part of a $10 billion media conglomerate – are in the middle of a business dispute about e-books. We want lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive.

Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.

The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.

Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, 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.

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. 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. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move. It was never in George Orwell’s interest to suppress paperback books – he was wrong about that.

And despite what some would have you believe, authors are not united on this issue. When the Authors Guild recently wrote on this, they titled their post: “Amazon-Hachette Debate Yields Diverse Opinions Among Authors” (the comments to this post are worth a read). A petition started by another group of authors and aimed at Hachette, titled “Stop Fighting Low Prices and Fair Wages,” garnered over 7,600 signatures. And there are myriad articles and posts, by authors and readers alike, supporting us in our effort to keep prices low and build a healthy reading culture. Author David Gaughran’s recent interview is another piece worth reading.

We recognize that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We tried that. Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store. Since then Amazon has made three separate offers to Hachette to take authors out of the middle. We first suggested that we (Amazon and Hachette) jointly make author royalties whole during the term of the dispute. Then we suggested that authors receive 100% of all sales of their titles until this dispute is resolved. Then we suggested that we would return to normal business operations if Amazon and Hachette’s normal share of revenue went to a literacy charity. But Hachette, and their parent company Lagardere, have quickly and repeatedly dismissed these offers even though e-books represent 1% of their revenues and they could easily agree to do so. They believe they get leverage from keeping their authors in the middle.

We will never give up our fight for reasonable e-book prices. We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us.

Hachette CEO, Michael Pietsch: Michael.Pietsch@hbgusa.com

Copy us at: readers-united@amazon.com

Please consider including these points:

– We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.
– Lowering e-book prices will help – not hurt – the reading culture, just like paperbacks did.
– Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle.
– Especially if you’re an author yourself: Remind them that authors are not united on this issue.

Thanks for your support.

The Amazon Books Team

P.S. You can also find this letter at http://www.readersunited.com

11 thoughts on “Love Letters in an Abusive Relationship”

  1. I was on the fence reading this article as to whether or not Amazon or Hachette truly had the writers’ best interest at heart. Until Amazon ended their letter to their KDP authors with:” e-books represent 1% of their (Hachette’s) revenues and they could easily agree to” lowering the price of eBooks. If this stat is factual, doesn’t it appear that this entire issue which has been hailed as a game-changer in the publishing has a lot to do about nothing? If it truly is only 1% – making that sampling so small in the grand scheme of things – why the hard line held by any of these parties, including the authors? Am I missing something?

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  2. Amazon makes a compelling argument. I look forward to Hachette’s response. Can’t properly form an opinion without both sets of information.

    Like

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