Amazon vs Hachette: Who should win the battle?

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    Amazon vs Hachette: Who should win the battle?

    The relationship between Amazon and Hachette Book Group started out as mutually beneficial. In the past, both businesses relied on an established book distribution process in which Hachette would wholesale

    their titles to Amazon, who would then sell the physical copies of books

    to potential customers. In this traditional process, costs were essentially

    higher because printed books need to be produced, transported, stored, and

    distributed. It was a win-win situation for both businesses. When Amazon

    introduced e-books and brought Hachette into the digital age, the publisher

    was happy to provide the content in return for a new revenue stream. However,

    as e-books became the fastest growing area of book sales, brick-and-mortar

    businesses began to struggle, and the business dynamics between Amazon

    and publisher changed. Hachette in particular, after being stimulated by

    Amazons investment and innovation, are uncomfortably reliant on the

    ecommerce site and looking for ways to maintain a grip on an evolving

    industry. However, they continue to find none. At the beginning of this

    spring in 2014, the dispute between the online retailer and the publishing

    conglomerate began. Their discussion revolves around the pricing of e-books

    and contract details for distributing Hachettes books. Much of it remained

    private, as most contract negotiations between giant corporations do, until

    Amazon purposely interfered with the sales of Hachette books, making

    some unavailable to purchase, delaying deliveries of others by weeks and

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    months, and advertising alongside some titles with a banner of similar

    items at a lower price (Yuhas, 2014).

    That being said, in this paper I will begin by exploring Amazons

    reasons behind their argument. Following that, I will analyze and question

    its plans and ways of business tactic to finally argue that, although Amazon

    poses lower e-book prices are better for everyone in the market for books,

    that includes the authors, publishers, customers, and Amazon itself, the

    truth is, Amazon does not care about the parties involved. Amazons main

    goal is to use its market power to become the dominant player in the book

    industry and to establish a new benchmark that would eventually diminish

    the roles of publishers like Hachette. Hachette needs to win the dispute for

    not giving Amazon all the power, for it is not only securing its own business

    but also helping bricks and mortars to survive while maintaining a balanced

    ecosystem within the publishing industry, book readers to continue to have

    access to a varieties of books, and most importantly, to maintain the values

    of authors work.

    Amazon claims their fight with Hachette is about helping everyone

    in the book market, and that their plan would actually make customers happy

    as well as help authors make more money which will in turn benefit the

    publishers. Amazon gives three main arguments. Firstly, many e-books are

    released at $14.99 and even $19.99. Amazon believes that it is unjustifiability

    high for an e-book, for there is no printing, no returns, no lost sales due to

    out-of-stock, no warehousing, or transportation costs required (Masnick, 2014)

    E-books can be and should be sold at the price of $9.99. Secondly, Amazon

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    argues that e-books are highly price elastic, which means that, when the

    price goes up, customers will buy much less. To prove its point, Amazon

    quantified the price elasticity of e-books from repeated measurements on

    many titles. For instance, according to Amazon (as quoted from Masnick

    2014, 3) for every copy an e-book would sell at $14.99, it would sell 1.74

    copies if priced at $9.99. In other words, if customers 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. The total revenue at $14.99 would be $1,499,000

    whereas the total revenue at $9.99 is $1,738,000. For this, Amazon claims that

    lower e-book pricing is good for all parties involved. Customers are happier

    because they are paying way less. Author is getting a larger royalty check

    and their book is being read by way more audience. Likewise, the higher total

    revenue generated at $9.99 is good for both the publisher and the retailer,

    for the total pie is bigger and therefore is more to share amongst parties.

    Finally, Amazon argues that it is also very important to keep in mind that

    books dont just compete against books. Today, books are also competing

    against other products like video games, movies, Facebook, free news sites and

    more. If prices of e-books remain high, customers will choose other cheaper

    or free route for information, therefore making it impossible to maintain a

    healthy reading culture. With all that said, Amazon also proposed its plan

    on how the pie should be split in order for all parties to be benefitted from

    setting e-book prices at $9.99. Amazon proposes that it will send 70% of

    the total revenue to Hachette while 30% of the total revenue remains with

    them. Hachette can then decided on how they want to split the 70% with

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    their author. However, Amazon believes that 35% should go to the author

    and 35% to Hachette because it believes that Hachette is sharing too little

    with the author today. While the publisher contribute plenty toward the

    production of books, it doesnt make sense for them to deserve 60 to 70

    percent profits on e-books when they are virtually free to distribute (Dent,

    2014) Amazon arguably deserves its larger share of the e-book market, since

    it was the one who created it in the first place with the Kindle.

    Perhaps most people would agree that Amazon argued some

    reasonable points and its plan for splitting the pie is fair for all parties.

    However, it seems that Amazon is taking too much of an optimistic view

    for book sales in general, and their approach to lower e-book pricing to

    $9.99 brings up many questions. For instance, Amazon does not discuss its

    blog post on the record, but its post notes on the data based on aggregate

    sales over a wide number of books in its Kindle store (Manjoo, 2014). This

    suggests that price elasticity for specific titles varies widely depending on

    the author, genre, length, or other factors. In other words, perhaps it may be

    true that $9.99 is more appealing and better than $14.99, but those books

    written by well-known authors, whose books may guarantee incredible

    sales rate, say, books by Stephen King or J.K. Rowlings, wouldnt they make

    the most money at $10.99, $11.99, $12.99? (Manjoo, 2014) It does not make

    much sense for those well-known authors to decrease the value of their

    work when if fact their name and their work is worth more than $9.99. It also

    does not make much sense to compare, say for instance, a 750-page book

    by Stephen King than with a 100-pager by an unknown debut novelist. By

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    devaluing the work of famous authors puts them in a somewhat awkward

    position, for what exactly does being famous mean anymore? This shows

    that Amazon does not care about nurturing the already established authors,

    not to mention those authors who are just starting up and still need to be

    nurtured to gain their fame. By pointing fingers at Hachette for sharing

    too little revenue with their authors, Amazon make it seems like they are

    fighting for authors when in reality it also does not think about the values

    of authors work. Furthermore, when looking at the market for print books,

    there are possibilities that some people who are willing to buy e-books

    at $9.99 but not at $14.99 are from the market for print books. What if

    the increased revenue that authors and publishers get from low-priced

    e-books is outweighed by lowered revenue through cannibalized print sales?

    (Manjoo, 2014) Amazon, which sells print books, would know whether this

    is the case, but it mentions nothing about how low priced e-books might

    threat or benefit the sales of print titles, which publishers and other brick

    and mortars depend on as well. This again shows that Amazon does not

    consider or give too much though on how the change could affect other. It

    seems that Amazon is planning for something bigger. That is, to become

    the dominant player with power within the book publishing industry.

    It has in fact already happened when Hachette balked after Amazon

    demands a larger cut of the price of Hachette books it sells, Amazon curtailed

    sales of its 5,000 titles by halting pre-orders, delaying shipments, despite

    plentiful supply, eliminating discounts and removing some promotional

    pages entirely (Dent, 2014) What does this say about Amazon? It is obvious

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    that Amazons is using this power as their corporate strategy to get what they

    want; its a strategy amount to corporate bullying. Some might be tempted

    to say that this is how business works, but can we believe that Amazon wont

    abuse this power in the long run? The answer is no, we cant. According to

    Krugman (2014), the Timess Bits blog documented two Hachette books

    that received very different treatment. Daniel Schulmans Sons of Wichita

    and Paul Ryans The way Forward are both listed as eligible for Amazon

    Prime, but because Ryan was Mitt Romneys running mate and is chairman

    of the House Budget Committee, Amazon offers the free two-day delivery

    whereas Schulmans book the 2 to 3 weeks delivery. When Amazon calls

    on Hachette for sharing so little revenue with their authors, knowing that

    ultimately it is not its call, Amazon says it in ways that make them seem

    like it is the hero to save the authors from Hachette. However, looking at the

    case above, it is obvious that Amazon does not care about the authors. Its

    care is depended on reasons in which believe could benefit them. So, how

    is Amazon the hero for all authors by picking one over the other? Amazon

    cannot be trusted, and giving it more power is just a risky decision.

    It can be predicted, when in fact Amazon has already abused

    the power it has, that if Amazon ends up winning the debut, all the key

    players including the retailers, publishers, customers, and authors will be

    greatly affected. For starters, lowering e-book prices could put more of their

    competitors out of business. There is no point of selling any more print

    books if no one is buying them. In addition, if publishers like Hachette

    loses influence, or have less budget to nurture authors, literature could

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    be ruled primarily by the forces of the economy, reducing the number of

    interesting or cutting-edge books (Dent, 2014) Lower e-book prices may

    sound good for consumers, but this would only mean saving a few dollars

    per book; not to mention that most people dont buy a ton of books every

    year. These price savings arent likely to drastically improve many peoples

    bottom lines. While e-book prices may drop if Amazon wins, readers could

    be the losers in at least one way. They may have access to fewer new titles

    and fewer new authors. According to Mulpuru-Kodali (as quoted from Hill,

    2014) Amazon has squeezed profit out of the market and is now trying to

    shift the loss to their suppliers, and In the long run, squeezed suppliers

    exit the market. (9) So, with fewer publishers to produce books, consumers

    may end up with less selection. Similarly, if publishers margins are hurt

    by lower prices, they may be less willing to take risks on unproven authors,

    which could result in fewer authors getting deals. Moreover, it has always

    been known that the role Hachette is the producer and Amazon is the

    distributor. But with todays advanced technologies, any body can be a

    producer. The only difference is that, as described by Stross (2014), Hachette

    is a value-added wholesale distributor: they supply editorial, production,

    packaging, marketing, accounting, and sales services (9) and pays the

    author a percentage of the revenue. There is no argument that authors cant

    be producers themselves, in fact, they can all self-publish. However authors

    may not have the knowledge, time, or money to go through each publishing

    procedures, so they need specialists like Hachette to help them. Amazon is

    not a value-added wholesale distributor; it is a retail distributor. They have

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    a publishing subsidiary that allows anyone to self-publish, to use them as

    a sales channel, and to even get paid quite well if they accept extremely

    onerous terms, but they dont do much else for authors. Authors would be

    very vulnerable and will have exactly the same pressure that Hachette is

    currently on the receiving end of, but with less recourse (Stross, 2014). If

    publishers diminish, authors could be the ones suffering.

    Regardless of how convincing Amazons proposal sound, there

    are still questions around its ways of business tactic that are worth being

    analyzed and thought about. Amazons way of business tactic could be

    argued that it is not doing anything wrong, but its ways of pushing others

    out of the book publishing industry is unethical. Hachette must try to seek

    out ways to win the battle to save itself as well as saving book readers the

    chance to have choices to access a variety of cutting-edge books. It is also

    fighting to maintain a well balanced ecosystem that benefits all parties

    involved, and most importantly saving the real values of authors work.

    By analyzing, questioning, and seeing evidence of how Amazon is using

    its business tactics to overpower others while abusing it power, it is quite

    predictable that publishers, book readers, and authors will be at risk if

    Amazon wins the battle and becomes the dominant player within book

    publishing industry.

  • References

    Dent, S. (2014, August 25). What you need to know about Amazons fight with e-book

    publishers. Message posted to http://www.engadget.com/2014/08/25/amazon-

    hachette-explainer/

    Hill, C. (2014, August 17). Amazon vs. Hachette: Which side should you cheer for?

    Message posted to http://www.marketwatch.com/story/amazon-vs-hachette-

    which-side-should-you-cheer-for-2014-08-13

    Krugman, P. (2014, October 19). Amazons Monopsony is Not O.K. Message posted

    to http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-

    monopsony-is-not-ok.html

    Manjoo, F. (2014, August 1). Amazon wants cheaper E-Books. But should it get to enforce

    prices? Message posted to http://bits.blogs.nytimes.com/2014/08/01/amazon-

    wants-cheaper-ebooks-but-should-it-get-to-enforce-prices/?_php=true&_

    type=blogs&_r=0

    Masnick, M. (2014, July 30). Amazon To Hachette And Authors: Here, Let Us

    Explain Basic Price Elasticity To You. Message posted to https://www.techdirt.

    com/articles/20140729/16470728046/amazon-to-hachette-authors-here-let-us-

    explain-basic-price-elasticity-to-you.shtml

    Stross, C. (2014, May 26). Amazon: malignant monopoly, or just plain evil? Message

    posted to http://www.antipope.org/charlie/blog-static/2014/05/amazon-

    malignant-monopoly-or-j.html

    Yuhas, A. (2014, August 12). Amazon vs Hachette: readers and authors take sides in

    publishing dispute. Message posted to http://www.theguardian.com/books/2014/

    aug/12/amazon-hachette-readers-authors-publishing-dispute

    http://www.engadget.com/2014/08/25/amazon-hachette-explainer/http://www.engadget.com/2014/08/25/amazon-hachette-explainer/http://www.marketwatch.com/story/amazon-vs-hachette-which-side-should-you-cheer-for-2014-08-13 http://www.marketwatch.com/story/amazon-vs-hachette-which-side-should-you-cheer-for-2014-08-13 http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html http://bits.blogs.nytimes.com/2014/08/01/amazon-wants-cheaper-ebooks-but-should-it-get-to-enforce-prices/?_php=true&_type=blogs&_r=0http://bits.blogs.nytimes.com/2014/08/01/amazon-wants-cheaper-ebooks-but-should-it-get-to-enforce-prices/?_php=true&_type=blogs&_r=0http://bits.blogs.nytimes.com/2014/08/01/amazon-wants-cheaper-ebooks-but-should-it-get-to-enforce-prices/?_php=true&_type=blogs&_r=0https://www.techdirt.com/articles/20140729/16470728046/amazon-to-hachette-authors-here-let-us-explain-basic-price-elasticity-to-you.shtmlhttps://www.techdirt.com/articles/20140729/16470728046/amazon-to-hachette-authors-here-let-us-explain-basic-price-elasticity-to-you.shtmlhttps://www.techdirt.com/articles/20140729/16470728046/amazon-to-hachette-authors-here-let-us-explain-basic-price-elasticity-to-you.shtmlhttp://www.antipope.org/charlie/blog-static/2014/05/amazon-malignant-monopoly-or-j.htmlhttp://www.antipope.org/charlie/blog-static/2014/05/amazon-malignant-monopoly-or-j.htmlhttp://www.theguardian.com/books/2014/aug/12/amazon-hachette-readers-authors-publishing-disputehttp://www.theguardian.com/books/2014/aug/12/amazon-hachette-readers-authors-publishing-dispute