Konrath vs. Stross on the Amazon/Hachette affair

So, more people have chimed in on the Amazon/Hachette thing. Most notably, Charlie Stross has blogged about it. Given that he’s published by Orbit, a subsidiary of Hachette, it’s understandable that his point of view is rather similar to Lilith Saintcrow’s: Amazon is a “malignant monopoly” engaging in predatory pricing, bullying Hachette, and so forth.

Joe Konrath and pseudonymous guest blogger William Ockham have a different point of view. Konrath posted an essay to his blog in which they demolish Stross’s arguments point by point. Most of it is the same argument/counter-argument we’ve been hearing over and over, which I won’t bother to rehash, but Ockham brings up an interesting point.

He reminds us that the Big 5 publishers complained to Judge Cote about Apple’s extended proscription from agency pricing as part of the final judgment in the anti-trust suit, because they wanted to be able to agency price again as soon as their two-year waiting period was up and didn’t want to have a major retailer around who could still offer e-books at a discount.

So, the legacy publishers are starting to be able to negotiate, one by one, with Amazon for new contracts. The first of those is Hachette. Amazon has removed the pre-order buttons on forthcoming Hachette books. Last time a publisher tried to impose agency pricing, Amazon removed the “Buy” buttons from their current books.

But maybe that’s not enough evidence for you. Let me suggest that you find a few Hachette ebooks which are not available for pre-order on Amazon and then go over and look at the prices on Barnes & Noble’s web site. Carefully note the paper list price and the ebook price. When I did this, every single title I checked fell within the non-discountable price bands in Apple’s illegal proposal from January 2010. And if you check the ebook prices for the same books in the iBookstore, you will discover that Apple is offering most of them for less. Because Apple needs to keep its nose clean during its appeal. Hachette has pretty clearly already got B&N to sign on to the non-discountable agency prices (because B&N would love not to have to compete on price with Amazon).

I really don’t understand why this is such a big mystery to people. Hachette is doing what they said they were going to do. Amazon is reacting exactly the way we would expect them to.

A little further down, William adds:

Now, I ask you this. Do you think Amazon is going to give in? I don’t. A long time ago, I read a book that had a very important concept about negotiation. It’s called your BATNA. That stands for Best Alternative To A Negotiated Agreement. You always need to know yours and it really helps if you know the other party’s. I think Amazon has the best BATNA. They just stop carrying Hachette books. Amazon buyers will still be able to get them through third-party sellers on Amazon’s site. Hachette’s BATNA is what, exactly? So, I predict that Hachette will blink. And then we will get to see if any of the other Big 5 publishers want to make a go of it.

Kind of a funny thing is that, in a post on the Smashwords blog, Mark Coker suggests that Hachettes’s BATNA might be the exact same thing:

The boldest option is for Hachette to play the nuclear card: they can withdraw all their books from Amazon.  Hachette could direct readers to more publisher-friendly platforms and stores.  Hachette could also make a more concerted effort to develop new channels of distribution.  Curiously, neither Hachette nor any other major NY publisher has ever attempted to sell their books in the Smashwords ebook store, despite the fact that Smashwords pays up to 80% list.  Publisher insistence on DRM is one of several factors that has locked them into Amazon and locked them out of new outlets.  Most of the publishers are also refusing to work with the new ebook subscription services, or have treated libraries as second-class citizens, even though these two channels provide yet another healthy counterbalance to a single retailer’s dominance.

Of course, talk about Hachette selling via Smashwords, or developing its own distribution channel, kind of misses the point. Sure, Hachette could sell its books by Smashwords, its own store, or other means. But given how many people read e-books on their Kindle, and demand the one-touch convenience of instant purchases from their device, they’d lose a lot of business that way.

Again I point to the example of Baen, who had been selling DRM-free e-books on its own for well over a decade but nonetheless found it worthwhile to change the way its entire Webscriptions e-book store worked, up to and including dropping bundles from its back catalog altogether, so it could get its e-books into the Kindle store.

Baen’s e-books had been perfectly Kindle compatible up to that point; you just had to sideload them or email them to your Kindle address. It even had a form on its webpage where you could do just that. But apparently even that was just too much work for customers, who kept scratching their heads in confusion and complaining, “Why aren’t your books on Kindle?” And there were so many of those people who would have bought in a heartbeat via Kindle but couldn’t be bothered to sideload that it was costing Baen more money not to be on Kindle than it lost from angry Webscriptions customers in getting there.

Amazon has done the trick of making e-books easy to purchase even for people who can’t figure out how to program their DVR. (Of course, to be fair, Barnes & Noble, Kobo, and Apple have done the same, or near enough. But so many more people read via Kindle than via those platforms that it’s still most effectively an advantage for Amazon.) That’s really quite an accomplishment, when you get right down to it, and probably in no small part responsible for Amazon’s domination of the e-book market.

And that’s also what Hachette knows damned well it would be giving up if it pulled its books from Amazon, or allowed Amazon to drop them. Amazon, on the other hand, knows that a minority of its customers even want Hachette books, so if it has to it can do without them for a while.

As far as Amazon is concerned, it has a lot less to lose if it doesn’t cave (no Hachette books until they come crawling back, boo-hoo) than if it does (agency pricing for Hachette, and for everyone else too once the camel’s nose has entered the tent). My suspicion is that if someone ends up pushing the big red button, it won’t be Hachette.

After the negotiations fall through, Amazon will no longer have a contract with Hachette and hence will no longer be able to order books from Hachette’s distributor. So it will have no choice but to remove the buy buttons, because Hachette won’t be selling to it anymore. Of course, it will then be Amazon’s fault for not giving in and costing Hachette a big chunk of sales. Never mind that any store has the right to decide what items it does or does not carry if it feels the terms from the supplier are too onerous.

I would not be at all surprised if that’s how this little game of chicken plays out: no give at all from Amazon, so Hachette will either have to swerve or take the collision head-on and hope its airbag works. Either way, it’ll probably be a few months before we know for sure. Hachette’s contract still has a while to run yet.

(Nate Hoffelder also has a rebuttal to Stross at The Digital Reader, in which he cites yours truly.)

6 Comments on Konrath vs. Stross on the Amazon/Hachette affair

  1. Keep in mind why Amazon is hostile toward agency pricing. It means that an author or publisher sets the retail price, so no one dominate retailer (Amazon) can slash prices below cost and use their deep pockets to destroy their competitors. And once those retailers are effectively destroyed, that one retailer can dictate prices and royalties.

    In the case of Amazon, that means the current 70% royalties (less an inflated download fee) for ebooks in the $2.99-9.99 price range will drop to the 35% that Amazon already pays for ebooks outside that price range. Remember, this debate is not about what Amazon might do. It’s about whether Amazon will acquire the market dominance to do what it already does in still wider areas.

    That’s why taking sides is this dispute is an easy choice.

    * If you’d like to see your income as a writer halved but perhaps indulge in a childish hatred for Giant Publishers Who Don’t See Your Genius, then by all means support Amazon. You’ll deserve all that happens to you.

    * If you’d like a chance to earn a living wage as a writer, then support Hachette. Your interests are perfectly aligned with theirs. What Amazon gets away with doing to Hachette in 2014 is what it’ll be doing to independents in a year or two. You can bet on that.

  2. That’s not what Hugh Howey, a highly successful independent himself, says.

    So let’s assume that Amazon does lower “royalties” in the future. To what? 30% of gross? The worst Amazon might do is still more generous than what the Big 5 currently offers. Why fear a hypothetical bogeyman when there are real ones? Here’s what would happen if Amazon demanded a 70% discount on wholesale from indies instead of the current 30% discount: Indies would concentrate all their promotion efforts on Kobo, the iBookstore, and Google Play. They would at the same time raise their e-book prices on Amazon so a sale there netted the same profit. This would keep earnings the same while driving consumers to other retailers. I would price WOOL at $13.99 instead of $5.99 and make my normal $4.20 per sale. I would have fewer sales on Amazon, but those I did get would pay the same. Most customers would go get it elsewhere. I would start linking primarily to other stores, blogging about how awesome some competitor is, and never promote or deal with Amazon again.

  3. Juli Monroe // May 27, 2014 at 1:24 pm //

    @Chris, And Konrath said basically the same thing in the comments on his post when someone asked about Coker’s Smashwords post.

    I also agree with Konrath that worrying about the future is far less productive than concentrating on the present. The sensible thing to do to adapt to the potentials in the future is to be on multiple platforms. I’d never trust Amazon as my only sales channel. I do make more from them than from elsewhere, but I do make sales elsewhere, and the numbers aren’t anything to ignore.

    Keep writing. Improve your writing. Keep your sales platform options open. You may not be able to quit your day job (I’m nowhere close to that point yet), but you’ll make money if you do all those things, and it’s likely sales will improve year over year. Mine have so far, and I’m only a few years in to this.

  4. @Michael W. Perry- Have you pulled your books from Amazon yet?

  5. Juli Monroe // May 27, 2014 at 3:20 pm //

    Someone commented on Howey’s post that he can’t actually raise his price at Amazon because of the contractual requirement that the Amazon price be the low price. Good point, and I forgot about that in all the reading I’ve done on this issue.

    Howey agreed and said he’d pull his books from Amazon if it happened. My guess is he actually wouldn’t, though. He’d accept the lower earnings while promoting the heck out of some other site(s). At least that’s what I’d do. When I get my email list and website in order, I’m seriously considering promoting the heck out of Smashwords. I make lots more there per book. True, I have to wait longer to get paid, but I’m patient.

    Which does not in any way mean that I’m abandoning Amazon. I’m not unhappy with my deal with them at this time.

  6. It is my understanding on that Amazon pays the price of the book as set by the publisher, but then has the discretion to discount and/or price the book as they see fit. Agency pricing PREVENTS this.

    I was around for the mess the first time around and ebook pricing took a huge jump up and not one author got a penny more in profit. At that time, the big 5 was scared that consumers would place less ‘value’ on ebooks because Amazon was promoting $9.99 or less pricing in order to help grow their Kindle customer base.

    And I ask anyone who thinks that $12.99 is a fair price for any ebook to actually go look at any DRM’d ebook agreement. DRM’d ebooks are not the property of the purchaser. In essence we are paying that price to license a copy of the book. Said license can be revoked.

    Really….

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