What Amazon Didn’t Say in Its Blog Post about Hachette

| The Back Page

If you mean to murder me, then bloody well get on with it. You took my sword, my horse, and my gold, so take my life and be done with it...but spare me this pious bleating.

Sandor Clegan - The Storm of Swords by George R.R. Martin

Amazon has come forth and told unto us it is waging holy war against Hachette for lo! The children. For only lower book prices can save the children—and indeed publishers and authors, too—and those greedy publishers are too stupid to understand.

Plus, Amazon has some numbers to back it up.

Save Me, Amazon Superhero!

Save me, Amazon Superhero!

Man, Amazon is good at this stuff. A whole host of media outlets spread Amazon's good word faithfully and truly. Who cares if it's a bunch of crap?

I do, and I'm happy to talk about the things that Amazon conveniently left out.

Firstly, the blog post is posted in full at the end of this piece (page 4). Allow me to summarize:

  1. Amazon's blog post was ostensibly explaining exactly what it and Hachette are fighting over.
  2. Amazon said that it is happy taking just 30% for its ebook cut—this is contrary to some reports that said Amazon wanted a higher percentage. It's unclear if this has always been the case, or if that is only Amazon's recent stance.
  3. Amazon wants ebooks to top out at US$9.99 per book.
  4. The company said its data shows that ebooks are highly price-elastic, meaning that books that cost less sell in higher volume. Amazon specifies that its data shows a, "$14.99 [ebook] would sell 1.74 copies if priced at $9.99," and it used units of 100,000 per title to make its point (even though few books sell in such quantities).
  5. As part of its argument, Amazon noted that the lower costs associated with ebook distribution are a strong argument for lower prices. (Even though Amazon knows that "the elimination of manufacturing and distribution costs are being offset by retail price reductions and the three additional costs" of ebook production, as explained by former publisher Michael Hyatt [link corrected].)
  6. Amazon says this is a huge winwin because selling 174,000 books at $9.99 represents 16 percent more revenue than selling 100,000 books at $14.99.
  7. Amazon also made another play at pitting authors against publishers by saying Amazon feels like authors should get 35 percent instead of the 25 percent they currently get for ebooks (to its credit, Amazon didn't mention the even lower percentage authors get for physical book sales).

It all sounds so good, right? Amazon is just trying to help those old fuddy-duddy publishers make more money, but those publishers are too stupid to let them. Right?

No, that's not right.

Image made with help from Shutterstock.

Next: Digging into the Numbers

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Comments

MonkeyT

That “elasticity” they’re talking about exists only when your audience is both price-sensitive and large.  If they don’t delay because of price, a price drop does not automatically induce more purchases, especially if the audience is limited enough that it is satiated by the higher price point.  A slightly better price will not cause existing customers to stock up on multiple copies or persuade non-customers that they are suddenly interested in the topic.  A narrow audience will expand slightly, but not significantly.  If customers are not conditioned to expect a product to appear with a wide variation of prices, sale rates my be slower, but will also be more predictable over a scheduled period, particularly with planned, product-lifespan-driven price reductions over time.  Carefully spreading out your income is the life or death of many businesses, because payroll and other expenses don’t wait for good sales.

Can Amazon also arbitrarily change the selling price (and thus, the percentage-driven compensation) of ebooks the way they could with hardcovers? (a practice which drove many brick and mortar stores under)

geoduck

The future (actually to a great extent the present.)

http://johnhartstudios.com/bcstrips/2014/july/bc073014dc.jpg

aardman

Thank you for laying out the duplicity and double talk of Amazon.  The company that pretends to be your friend but really wants to pick your pockets clean.  People have to realize that Amazon doesn’t want to be just the biggest retailer, they want to be the ONLY retailer and, with respect to the book industry, the only publisher as well.  As more people become aware of this the less likely they will succeed.  Everyone must spread the word about them.

furbies

What worries me is that members of congress will read Amazon’s press release and buy into the spin that Amazon is pushing.

Scott B in DC

I am so glad you wrote this. I was feeling a bit “lonely” as I heard the new reports echoing Amazon when all I kept thinking was if they did a little math and applied a little Economics 101 they would come up with the same conclusion that you and I did… in my circles we just call it BRAVO SIERRA!

nolatransplant

Link in point number 5 of summary is broken.

Bryan Chaffin

Thanks, nolatransplant. it’s fixed now. smile

cubefan

The fundamental problem is that Amazon is the 500lb gorilla in the room.  It uses marketing presence and financial muscle [even though it has NEVER declared a profit] to eliminate the competition.  For that reason alone, I choose to shop elsewhere, I am fortunate, I have that choice, not everybody has.  If I buy an ebook, I try to buy direct from the publisher, eliminating Amazon. If I buy a physical book, I buy from a bookshop.

Independent Record and Book shops have all but disappeared under the weight of the competition - use them or LOSE them.

Books in all forms are the lifeblood of culture and learning - in the race to the bottom the only ones left standing are the self publishers, but what happens to the skills, talent and expertise of the editors, type setters and cover artists?  Amazon are killing the goose but are only interested in having all the cake.

ibuck

I WAS a big Amazon customer, but now, due to their scandalous employment practices and monopolist behavior, I also shop elsewhere (Barnes & Noble, booksamillion, etc). Jeff Bezos leadership seems bad for Amazon, whose losses are mounting, and I wonder if shareholders will oust him at some point. If not, will his “empire” come crashing down?

Arnold Ziffel

Just a minor quibble, Bryan, but why is the term “price point” used, when “price” alone conveys what is intended. Prices, at least the ones I see on merchandise, gasoline, food, movies…you name it, are all presented as “points”, not ranges. So, ditch “price points” and go with “prices”.

Walt French

Nothing you said seemed wrong, but it was way too complex.

Amazon correctly identified the three main components of a book’s “value stack”: the writer, the publisher and the selling. Traditionally, the publisher has taken all the risk of a book’s success, perhaps making up-front payments to an established writer, but promoting and marketing it, in any case; additionally, as you note, it provides valuable editing and guidance, artwork, etc.

Those fixed costs don’t factor into the price elasticity equation, which are entirely based on the incremental cost of one more book. Amazon is pretending that if those mostly-fixed costs exist, they are minor. That’s bullshit.

More bullshit comes in those price elasticities. They may be correct from tests Amazon conducted on individual titles, but they are unlikely to be true for the industry as a whole: Amazon’s figures cite 75% more sales from a 33% price reduction, but it’s simply inconceivable that if prices of ALL books were cut by a third, that the total number of books read would go up by 75%. One title, for a person who likes novels and uses the best-sellers list as a guide, sure. The total number of books that reader buys and reads in a year would be little-changed. Certainly, not enhanced enough that the publishers’ increased risks would be covered.

This is, pretty clearly, a battle between Amazon, which has garnered an incredible share of books sold, and has a LOT of power, enough that it now sees fit to attack the publishers, on whom they are supposedly dependent. I don’t have any great love for publishers (not being a writer so not knowing how much value they really bring), but readers should understand this is just a power grab by Amazon, now that they control such a huge slug of the book market.

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