The Amazon versus Hachette Story – What’s all the noise about?

After having read the Amazon – Hachette dispute in almost every newspaper in the US and worldwide, one is almost convinced that the event is blown out of proportion by the press. The spectacle on the outset appears to be nothing more than a soured contract negotiation between a supplier and a retailer. However,it should be understood here that the supplier we speak of is one of the biggest publishers in the world and the retailer is no less, the largest bookseller in the world.

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There are enough reasons to believe that the contract under the radar is capable of changing the dynamics of the books selling industry in the US. Here’s how,

  • Amazon, the largest bookseller in the world, controls  nearly 50% of all the book sales in the United States – both physical and digital
  • A major part of the e-book market in the US has been built by Amazon with Kindle, the first e-book reader that allows users to download ebooks over a private network. Amazon controlled nearly 90% of the ebook industry by the end of 2010
  • Amazon’s share of the ebook market dropped to 65% in two years after the launch of Apple Inc’s iBooks. This was made possible by a collusion of five publishers namely, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster  with Apple to fix the price of ebooks across retailers. This was illegal as it interfered with the free market dynamics. The publishers were fined and their contracts with the retailers – Amazon, Apple, Barnes & Noble were renegotiated.
  • Two years later in 2014, Amazon has regained its control over the ebook market with discounted prices. Its rivals have either away from the market like Sony and Kobo or are suffering from receding sales like Barnes and Noble, Apple and Google.
  • Of the five publishers who were mandated to renew their contracts with retailers in 2012, Hachette is the first one to close another contract with Amazon.  The Amazon and Hachette contract has made its way to the tabloids again. In the next two years, Amazon and other retailers will renegotiate contracts with the large publishers. In 2015, the publishers will be allowed by law to renegotiate prices with the retailers.
  • Here comes the trouble. Amazon wants to retain control over thee pricing of its ebooks by giving as much discount as it wishes to. Hachette want to leave an opportunity to go back to its uniform pricing policy for retailers in 2015. This will be in the interests of the likes of Apple and Barnes & Noble who, unlike Amazon, cannot price it incurring a loss on unit sale of books. Amazon, on the others hand can discount its ebooks at a  loss as it recovers its margins from the sale of other products while maintaining its market share in ebooks.
  • In addition to pricing Amazon also wants Hachette to pay a higher c-op i.e., a premium for strategic placement of its books on the website. This would essentially mean Hachette needs to transfer some off its margins to Amazon.
  • If the dispute ends with Amazon having its way, it is very likely that all the other publishers will have to follow suit. Amazon will continue to dominate the market with large discounts on books. Larger co-op would translate into lesser margins for publisher which would reduce publishers’ investments in risky projects. Risky projects for publishers would typically mean lesser selling books like non fiction taking a hit.
  • With a large control over the distribution channel for books, Amazon is capable of dictating what books readers will be able to buy and gain access to. Media ownership rules in the US stems from the basic understanding that the no single entity should have too much control over the flow of information/ideas.
  • Publishers, in the meantime, are desperately looking for alternate distribution channels to reach the customers and developing a business model that meets the interests of both the publishers and the customers. However, for customer using Kindle, switching to different retailer is not an option.
  • Both the party have a lot at stake – Amazon is risking its relationship with its customers when it is not allowing readers to buy or pre order Hachette books or delaying the delivery of Hachette books. Hachette, on the other hand is risking its standing among the authors as Amazon is the biggest bookstore and Hachette needs to have its books put up at Amazon.

Needless to say, whatever be the outcome of the feud, book lovers are getting adversely affected in this power battle.

 

Related readings:

http://www.slate.com/articles/technology/technology/2014/05/amazon_hachette_dispute_how_the_big_five_publishers_could_have_avoided_the.html

http://www.theatlantic.com/business/archive/2014/05/how-the-amazon-hachette-fight-could-shape-the-future-of-ideas/371756/

 

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