The Amazon Conflict

by
Kevin Nance
9.30.14

They were a team, once. In the mid-1990s, the fledgling e-retailer Amazon and the major New York publishing houses—the Big Six, as they were then known—professed themselves partners in a new era of online bookselling. One senior executive recalls Amazon’s founder, Jeff Bezos, announcing his enthusiasm for their common cause. “I remember sitting at a conference table with Jeff telling a handful of us about what he wanted to do,” says the executive, who asked to remain anonymous. “We said, ‘That’s great.’” And for years the partnership was mutually beneficial. As Grove/Atlantic’s president and publisher Morgan Entrekin conceded back in July, at a forum at the New York Public Library (NYPL), Amazon provided “a smooth transition to digital” that kept publishers happy: “It was primarily that there was a reliable vendor; we didn’t have piracy problems, and we got paid decently.” Good times, those.

For much of 2014, Amazon and Hachette Book Group...have been locked in a hostile public dispute over e-book pricing that some view as threatening the fragile ecosystem of the book industry, which includes writers, readers, publishers, brick-and-mortar bookstores, and online book retailers.

But that age of convivial cooperation seems to be over, replaced by accusations and acrimony. For much of 2014, Amazon and Hachette Book Group—one of the Big Five publishers, as they’ve been known since the 2013 merger of Penguin and Random House—have been locked in a hostile public dispute over e-book pricing that some view as threatening the fragile ecosystem of the book industry, which includes writers, readers, publishers, brick-and-mortar bookstores, and online book retailers. On the simplest and most immediate level, Amazon wants to be allowed to sell e-books more cheaply, which it argues will benefit readers and lead to increased sales and higher royalties paid to writers. Hachette, whose divisions include Little, Brown and Grand Central Publishing, among others, begs to differ. (Although Amazon and Hachette have refused to grant most media interviews about the details of their ongoing negotiation—both declined to comment for this article—they have issued statements summarizing their positions.)

Is the current dispute just about e-books, or does it have more fundamental, perhaps existential implications? “In the publishing business, people tend to think you’re either going gangbusters or you’re on your way to death, but in reality, people are just evolving,” says Edward Nawotka, editor in chief of the trade journal Publishing Perspectives. “It’s like marriage. Husbands and wives will blow up at times, and the smallest, most insignificant thing can start a fight that appears to be the be-all and end-all. But people are just evolving. It’s the small stuff that makes you crazy.” Others, however, tend to view the Amazon-Hachette fight as less of a lovers’ squabble and more of a prelude to a real crisis that could damage American literary culture by crippling traditional publishers’ ability to publish books with great artistic merit or scholarly value but far lower commercial prospects than more popular books. “Publishers don’t make a lot of money,” the megaselling thriller writer James Patterson said at the NYPL forum. “The great fear for me is that if [traditional publishers] get squeezed down any more than they’re getting squeezed now…they’re not going to have money to bring authors along, they’re not going to have money to buy [books like] Infinite Jest.”

In this way of thinking, the dispute is about far more than the price of e-books; it’s about the future of literature itself. Some fear, for example, that Amazon’s drive to increase its already dominant share of the e-book market could spill over into hardcovers, ultimately depriving traditional publishers of a sustainable business model and making it impossible for them to offer advances that many authors depend upon. And if Amazon continues to increase its market share by underselling its competitors (including chain and independent bookstores as well as other e-retailers), many believe that it will eventually become effectively a monopoly, concentrating unprecedented power in the hands of a single corporation—one that treats books as commodities rather than as intellectual capital whose intangible value to the culture transcends economics.

“Perhaps I’m biased, but I think that books are more than commodities like vacuum cleaners," says Amy Berkower, a leading New York literary agent and a member of the board of Poets & Writers, Inc. “I don’t know the terms of the Hachette-Amazon dispute, but I suspect Amazon is seeking more than lower e-book prices, and I fear they are asking for greater discounts that will seriously affect the already slim profit margins on which publishers operate. Unlike Amazon, publishers can’t depend on other products like vacuum cleaners to pay the bills. If their profit margins are seriously diminished, they won’t be able to afford to pay the kind of advances that finance serious works of fiction and nonfiction. I’m all for self-publishing, lower prices, and higher e-book royalties, but not at the expense of destroying a model that, however faulty it may be, provides the capital for books that require years to research and write.”

Whether such a scenario comes to pass or not, only time will tell. In the short term, Amazon argues that e-books should be cheaper because they cost less than physical books to produce. Furthermore, they say, cheaper e-books will strengthen, not harm, the culture of reading. “For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99,” the company stated in an open letter to readers. “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 at the lower price, total revenue increases 16 percent. This is good for all parties involved: The customer is paying 33 percent less. The author is getting a royalty check 16 percent larger and being read by an audience that’s 74 percent larger…. The total pie is bigger.”

But as book-industry observers point out, this formula is unlikely to apply to many books, such as literary novels, with great cultural importance but far lower commercial expectations than popular or genre fiction. “What Amazon says might be true for some writers, but it’s not necessarily going to be true for all writers,” says Roxana Robinson, president of the Authors Guild—the nation’s leading professional association for writers—and the author of eight books, including the novel Sparta (Sarah Crichton Books, 2013). “That means if their sales don’t increase, they’ll just get a drop in revenues. So for Amazon to say they’re doing this to benefit writers, it doesn’t ring true.” And one publishing executive at a Big Five house, who asked to remain anonymous, calls Amazon’s position on e-book pricing “disingenuous at best, not to mention a fundamental misunderstanding of the marketplace. There are costs associated with e-books. It’s true that the profit margins are better on e-books, but e-books are not published in isolation. E-books are published in tandem with physical books, which are very costly to produce.”

In August, Michael Pietsch, the former Little, Brown editor and publisher who is now Hachette’s CEO (and is also a member of the board of Poets & Writers, Inc.), responded to Amazon’s statement with his own open letter. Hachette’s e-book prices are far below those for print books, he noted, with more than 80 percent of its e-books priced at less than ten dollars, and the prices for e-books are lowered when the paperback version of the original hardcover is published. “We know by experience that there is not one appropriate price for all e-books, and that all e-books do not belong in the same $9.99 box,” he wrote. “Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and e-book. While e-books do not have the two- to three-dollar costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.”

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Comments

What a mess!

I have worked for two years on my first novel. This is so disheartening I'm tempted to just put it in a trunk until these boys and girls stop behaving like school kids on the playground. Writers seriously want to communicate to readers, regardless the subject. Creating this political he said/she said is the best possible way to totally discourage new authors, not to mention reducing credibilty of the entire industry. Shame on all of you!

Ridiculous Fear-mongering

Sorry, but this article is completely one-sided. What about self-published authors who have been very successfully and couldn't get traditionally published? The future at literature is NOT at stake. Whenever that sentence is written in an article about a dispute between giant corporations, it automatically invalidates the entire article.

While everything in here is

While everything in here is understandable, reality requires mentioning that only the smallest minority of advances for a first work of fiction (or second, third, or fourth, or or for non-fiction books of most kinds as well) is currently enough to for a writer to live on while working on the book under contract. Once, that may have been the case. But advances of over $10,000 (let alone a living annual income for the several years it may take to write a book) are exceedingly rare.

It's also transparently obvious that allocating some share of initial costs to e-book costs is just a matter of choosing to do so, since the *incremental* costs of publishing a book don't go up that significantly when e-books are added. The editorial process is unchanged from the time when books existed only in print, except for someone adding some html code. And distribution/manufacturing is far cheaper.

Times are difficult. I very much want traditional publishing to survive. Amazon can't become the only outlet in the field for getting books into people's hands. Still.. truth-telling matters, if we want to think both clearly and fairly about the evolving future of books. Publishing industry spokesmen need to not pretend to P&W's readers and aspiring writers that living wage advances are the rule, when they are rare. And P&W would do better reporting this story with objective views and a bit of investigative thoughtfulness.

The Eye of the Beholder

Reading the article, we understand that Amazon did not generate the catchy label collusive cartel; it was the Department of Justice's description of the arrangement between the big five as to costs and prices for their products in the marketplace, which by their non-public arrangement became anything but a free market. From another perspective, if the largest automakers arranged for a minimum level pricing for all the industry's production, the same label would apply. Anything that restricts the public's ability to access goods and services by an understanding between the producers of the goods and services qualifies as actions by a collusive cartel.

We can understand how the big five publishers may wish to arrest the passing of time and the continued advances of technology. They certainly would be justified in attempting to control the goods and services by initially controlling the number of writers they sponsor, the subjects of their writings, the manner of their expression, and above all, accepting only productions that generate the highest possible price for the work with which their chosen writers reach their public. It would not surprise us if the big five preferred to produce hard-cover editions bound in leather ignoring the paper-back editions that produce for them lower profit margins. These august enterprises probably resist lower margins as vehemently as the investment banks who barely fifteen years ago charged hundreds of dollars for trades that today an investor can make at discount brokers for a paltry $7. 

The fact is that some of us own the entire collection of 19th century American, British, French, and Spanish novels in electronic format--be it on Kindle or Nook or some other trademark of lesser fame and market penetration--for a negligible out of pocket cost. Our grandparents were unable to stock the books we hold in our libraries today and they would be stunned to learn that we paid for them less than the price of a mediocre bottle of wine. True, the 20th and 21st century writers command higher premiums, but their work is accessible to the masses, not just the exclusive classes.

The technological revolution spearheaded by Mr. Bezos may be ill-regarded by the publishers, especially the big five, but the overwhelming majority of the readers around the world appreciate the access they have to works across the spectrum of creativity and knowledge, academia and trivia, all because of the ingenuity of individuals like Jeff Bezos, Bill Gates, and Steve Jobs to name the easiest to recall. This turf war is truly not about the writers. It's not about the readers, either. It's not about anything beyond the publishers' profitability and greed, all attempting to safeguard their hefty compensation schemes for executives at the very top of the food chain. 

Corporate publishing hurts anyone small - writer, reader, store

I am an author of literary fiction who grew up in a jobless, depressed area where people may always be "laboring harder for less and less" — the kind of town Jonathan Franzen (correctly) identified as a place Amazon chooses to build warehouses. My "publishing career" has been fitful. In 1994, my first published story won a Chicago Tribune Nelson Algren Award, and at the banquet I was slapped to attention before some bright literary lights, introduced to a Park Avenue agent, and, ultimately, received a year's worth of heart-stopping rejections from editors of a caliber I could only dream of reaching again. Nearly twenty years later, after riding out rollercoaster economies, raising kids, and writing after-work, I was again struck by good fortune when Kindle Singles picked up two of my stories and, nearly overnight, I acquired thousands readers and a renewed hope of living a literary life.

I care about the health of the American author and publishing as much as anyone who's been fascinated by the Amazon-Hachette fight. But my perspective on that spat — and the Department of Justice's anti-trust case against Apple, or related responses by Franzen, Scott Turow, Roxana Robinson, and others I admire — lacks the same End-Times savor you hear out there. I can't see Jeff Bezos as the Anti-Christ (Franzen's image) or Darth Vader (Turow's) because it's been my experience that if American authors — big and small — are indeed experiencing a "slow death," neither Amazon nor the Big Six traditional publishers will have killed us. Nor will we be able to blame the latest unthinking, amoral technology that we'll continue to use each day. We need to step outside the storm and listen close for the whisper inside to see what's killing America's authors, how they might be saved, and how we might give our nation's literature, overall, a boost in the process.

My full reply is posted on Medium, at http://bit.ly/1EqUwSY