On PaidContent, Laura Hazard Owen has followed up with the Salon reporter who broke the story yesterday that the Big Six publishers may be refusing to sign Amazon’s newest contract. Owen contacted the Salon reporter, Alexander Zaitchik, for further details, and was told one source was “within the publishing journalism industry” and another was a contact at a major New York publishing house.
Owen writes:
People familiar with the situation confirmed to me that at least two big-six houses have refused to sign new annual contracts — but I have not yet been able to confirm that all six did so. Amazon is still fulfilling customer orders, these sources said, but is not promoting big-six houses’ books on the site or in marketing materials in ways it once did.
The terms causing the publishers to balk are “co-op fees,” which were traditionally fees publishers paid to bookstores to get them to plug their books in the store. It’s not clear how that works when selling books through websites, but publishers have gone along with it until now. But as Zaitchik’s source noted, Amazon has pumped up the co-op fees in a “stupifyingly draconian” way, sometimes by as much as 30 times over what they covered in the 2011 contracts.
And Owen notes that this comes at a time when the publishers are especially wary of seeming to take any action in common with each other, due to the scrutiny five of them are getting from the Justice Department over implementing agency pricing in unison.
In fact, there’s kind of an odd symmetry to the whole thing. Just as agency pricing terms were favorable enough that publishers could have independently come to the decision to implement them, if Amazon’s contract terms were unfavorable enough then publishers wouldn’t need to consult with each other to turn them down either.
I wonder what the exact details of the new Independent Publishers Group contract that caused it to turn down Amazon’s renewal were? As far as I recall, the IPG never specified exactly what the contract did that was objectionable other than that it would cost the publishers enough money to make their e-books unprofitable. Might it have been higher co-op fees in that case, too?
Regardless, publishers have long feared that sooner or later Amazon was going to try to impose contract terms that would have meant they couldn’t meet their margins. Up to now the fear was always that Amazon would insist on lower wholesale prices—that’s why the publishers implemented agency pricing in the first place. But apparently Amazon figures that getting the publishers to pay higher co-op fees would work just as well as getting them to charge less money. (Indeed, since agency pricing takes any control of pricing out of its hands, it’s about all Amazon can do.)
So are we finally at that much-feared point where Amazon tries to cut publishers’ margins off at the knees? It still seems a bit early in the game for that to happen. And I’m not sure Amazon hasn’t overplayed its hand in this case. It’s one thing to cut off a bunch of independent publishers from Kindle—but it would be quite another to lose the “Big Six” publishers. Given how much the appeal of the Kindle is built on being able to buy those high-demand titles instantly, Amazon can’t want to stop selling them any more than the publishers do.
It will be very interesting to see what happens next, and who (if anyone) backs down. And the fact that this is all happening just as the Justice Department allegedly prepares to sue the publishers for antitrust violations just adds extra spice.
